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Fractional diffusion models of European option with Poisson process

  • Dianyu Song*
  • , Shancun Liu
  • , Hua Jin
  • *Corresponding author for this work
  • Beihang University

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

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.

Original languageEnglish
Title of host publicationProceedings - 2011 4th International Conference on Information Management, Innovation Management and Industrial Engineering, ICIII 2011
Pages278-281
Number of pages4
DOIs
StatePublished - 2011
Event4th International Conference on Information Management, Innovation Management and Industrial Engineering, ICIII 2011 - Shenzhen, China
Duration: 26 Nov 201127 Nov 2011

Publication series

NameProceedings - 2011 4th International Conference on Information Management, Innovation Management and Industrial Engineering, ICIII 2011
Volume3

Conference

Conference4th International Conference on Information Management, Innovation Management and Industrial Engineering, ICIII 2011
Country/TerritoryChina
CityShenzhen
Period26/11/1127/11/11

Keywords

  • European option pricing
  • Fractional Brownian motion
  • Hurst parameter
  • Poisson process

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