Fractional diffusion models of option prices in markets with jumps

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dc.contributor.author Cartea, Álvaro
dc.contributor.author Castillo Negrete, Diego del
dc.date.accessioned 2011-09-22T13:23:25Z
dc.date.available 2011-09-22T13:23:25Z
dc.date.issued 2006-08-11
dc.identifier.issn 1745-8587
dc.identifier.uri http://hdl.handle.net/10016/12149
dc.description.abstract Most 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.format.mimetype application/pdf
dc.language.iso eng
dc.publisher Birkbeck, University of London, School of Economics, Mathematics and Statistics
dc.relation.ispartofseries Birkbeck Working Papers in Economics & Finance
dc.relation.ispartofseries 0604
dc.relation.hasversion http://hdl.handle.net/10016/12179
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Fractional-Black-Scholes
dc.subject.other Lévy-Stable processes
dc.subject.other FMLS
dc.subject.other KoBoL
dc.subject.other CGMY
dc.subject.other Fractional calculus
dc.subject.other Riemann-Liouville fractional derivative
dc.subject.other Barrier options
dc.subject.other Down-and-out
dc.subject.other Up-and-out
dc.subject.other Double knock-out
dc.title Fractional diffusion models of option prices in markets with jumps
dc.type workingPaper
dc.subject.eciencia Empresa
dc.rights.accessRights openAccess
dc.type.version submittedVersion
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