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Fractional diffusion models of option prices in markets with jumps

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dc.affiliation.dptoUC3M. Departamento de Economía de la Empresaes
dc.contributor.authorCartea, Álvaro
dc.contributor.authorCastillo Negrete, Diego del
dc.date.accessioned2011-09-23T18:52:11Z
dc.date.available2011-09-23T18:52:11Z
dc.date.issued2007-02
dc.description.abstractMost of the recent literature dealing with the modeling of financial assets assumes that the underlying dynamics of equity prices follow a jump process or a Lévy process. This is done to incorporate rare or extreme events not captured by Gaussian models. Of those financial models proposed, the most interesting include the CGMY, KoBoL and FMLS. All of these capture some of the most important characteristics of the dynamics of stock prices. In this article we show that for these particular Lévy processes, the prices of financial derivatives, such as European-style options, satisfy a fractional partial differential equation (FPDE). As an application, we use numerical techniques to price exotic options, in particular barrier options, by solving the corresponding FPDEs derived
dc.description.statusPublicado
dc.format.mimetypeapplication/pdf
dc.identifier.bibliographicCitationPhysica A, 2007, v. 374, n. 2, pp. 749–763
dc.identifier.doi10.1016/j.physa.2006.08.071
dc.identifier.issn0378-4371
dc.identifier.publicationfirstpage749
dc.identifier.publicationissue2
dc.identifier.publicationlastpage763
dc.identifier.publicationtitlePhysica A
dc.identifier.publicationvolume374
dc.identifier.urihttp://hdl.handle.net/10016/12179
dc.language.isoeng
dc.publisherElsevier
dc.relation.isversionofhttp://hdl.handle.net/10016/12149
dc.relation.publisherversionhttp://dx.doi.org/10.1016/j.physa.2006.08.071
dc.rights©Elsevier
dc.rights.accessRightsopen access
dc.subject.ecienciaEmpresa
dc.subject.otherFractional-Black–Scholes
dc.subject.otherLévy-stable processes
dc.subject.otherFMLS
dc.subject.otherKoBoL
dc.subject.otherCGMY
dc.subject.otherFractional calculus
dc.subject.otherRiemann–Liouville fractional derivative
dc.subject.otherBarrier options
dc.subject.otherDown-and-out
dc.subject.otherUp-and-out
dc.subject.otherDouble knock-out
dc.titleFractional diffusion models of option prices in markets with jumps
dc.typeresearch article*
dc.type.hasVersionAM*
dspace.entity.typePublication
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