On the Solution of Fractional Option Pricing Model by Convolution Theorem
Journal Title: Earthline Journal of Mathematical Sciences - Year 2019, Vol 2, Issue 1
Abstract
The classical Black-Scholes equation driven by Brownian motion has no memory, therefore it is proper to replace the Brownian motion with fractional Brownian motion (FBM) which has long-memory due to the presence of the Hurst exponent. In this paper, the option pricing equation modeled by fractional Brownian motion is obtained. It is further reduced to a one-dimensional heat equation using Fourier transform and then a solution is obtained by applying the convolution theorem.
Authors and Affiliations
A. I. Chukwunezu, B. O. Osu, C. Olunkwa, C. N. Obi
Keywords
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- EP ID EP557768
- DOI 10.34198/ejms.2119.143157
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