Title :
Fractional Diffusion Models of European Option with Poisson Process
Author :
Song Dianyu ; Liu Shancun ; Jin Hua
Author_Institution :
Sch. of Econ. & Manage., Beihang Univ., Beijing, China
Abstract :
Under the hypothesis of underlying asset price with long-range correlations and jump in short time, the stock price model is constructed driven by fractional Brownian motion and jump process. Then an analytic solution for European option is obtained by quasi-martingale method in the environment of fractional Brownian motion and Poisson process. For the sake of understanding the model, the influence of Hurst parameter and Poisson process are also analyzed. Finally, the model pricing efficiency is compared with Black-Scholes model and Double exponential jump diffusion option pricing model by Baotou Steel JTB1 warrants.
Keywords :
Brownian motion; pricing; share prices; stochastic processes; stock markets; Baotou Steel JTB1 warrants; Black-Scholes model; European option; Poisson process; asset price; double exponential jump diffusion option pricing model; fractional Brownian motion; fractional diffusion models; jump process; quasi martingale method; stock price model; Biological system modeling; Brownian motion; Correlation; Cost accounting; Economics; Europe; Pricing; European option pricing; Hurst parameter; Poisson process; fractional Brownian motion;
Conference_Titel :
Information Management, Innovation Management and Industrial Engineering (ICIII), 2011 International Conference on
Conference_Location :
Shenzhen
Print_ISBN :
978-1-61284-450-3
DOI :
10.1109/ICIII.2011.349
