We introduced a new method to compute the European Call (and Put) Option price under the assumption of multifractional Brownian motion (mBm). The reason why we need a procedure for estimating the Option price is due to the absence of a closed formula for this process. To compute the Option price, we first simulated the logarithmic price under mBm and, by using a discount factor, we computed the option's pay-off. Then, we fitted the best probability distribution associated to the discounted pay-off, computing the European Call Option price as its average.
Option Pricing under Multifractional Process and Long-Range Dependence / Mattera, R.; Sciorio, F. D.. - In: FLUCTUATION AND NOISE LETTERS. - ISSN 0219-4775. - 20:1(2021), p. 2150008. [10.1142/S0219477521500085]
Option Pricing under Multifractional Process and Long-Range Dependence
Mattera R.
Primo
;
2021
Abstract
We introduced a new method to compute the European Call (and Put) Option price under the assumption of multifractional Brownian motion (mBm). The reason why we need a procedure for estimating the Option price is due to the absence of a closed formula for this process. To compute the Option price, we first simulated the logarithmic price under mBm and, by using a discount factor, we computed the option's pay-off. Then, we fitted the best probability distribution associated to the discounted pay-off, computing the European Call Option price as its average.| File | Dimensione | Formato | |
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