Pricing Option with Stochastic Interest Rates and Transaction Costs in Fractional Brownian Markets
This work deals with European option pricing problem in fractional Brownian markets. Two factors, stochastic interest rates and transaction costs, are taken into account. By the means of the hedging and replicating techniques, the new equations satisfied by zero-coupon bond and the nonlinear equatio...
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| Format: | Article |
| Language: | English |
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Wiley
2018-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2018/7056734 |
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| _version_ | 1832550373568544768 |
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| author | Lina Song Kele Li |
| author_facet | Lina Song Kele Li |
| author_sort | Lina Song |
| collection | DOAJ |
| description | This work deals with European option pricing problem in fractional Brownian markets. Two factors, stochastic interest rates and transaction costs, are taken into account. By the means of the hedging and replicating techniques, the new equations satisfied by zero-coupon bond and the nonlinear equation obeyed by European option are established in succession. Pricing formulas are derived by the variable substitution and the classical solution of the heat conduction equation. By the mathematical software and the parameter estimation methods, the results are reported and compared with the data from the financial market. |
| format | Article |
| id | doaj-art-bce0d6731f4643f9b8bb40f4a60c1391 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2018-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-bce0d6731f4643f9b8bb40f4a60c13912025-02-03T06:06:56ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2018-01-01201810.1155/2018/70567347056734Pricing Option with Stochastic Interest Rates and Transaction Costs in Fractional Brownian MarketsLina Song0Kele Li1School of Mathematics, Dongbei University of Finance and Economics, Dalian 116025, ChinaSchool of Economics, Dongbei University of Finance and Economics, Dalian 116025, ChinaThis work deals with European option pricing problem in fractional Brownian markets. Two factors, stochastic interest rates and transaction costs, are taken into account. By the means of the hedging and replicating techniques, the new equations satisfied by zero-coupon bond and the nonlinear equation obeyed by European option are established in succession. Pricing formulas are derived by the variable substitution and the classical solution of the heat conduction equation. By the mathematical software and the parameter estimation methods, the results are reported and compared with the data from the financial market.http://dx.doi.org/10.1155/2018/7056734 |
| spellingShingle | Lina Song Kele Li Pricing Option with Stochastic Interest Rates and Transaction Costs in Fractional Brownian Markets Discrete Dynamics in Nature and Society |
| title | Pricing Option with Stochastic Interest Rates and Transaction Costs in Fractional Brownian Markets |
| title_full | Pricing Option with Stochastic Interest Rates and Transaction Costs in Fractional Brownian Markets |
| title_fullStr | Pricing Option with Stochastic Interest Rates and Transaction Costs in Fractional Brownian Markets |
| title_full_unstemmed | Pricing Option with Stochastic Interest Rates and Transaction Costs in Fractional Brownian Markets |
| title_short | Pricing Option with Stochastic Interest Rates and Transaction Costs in Fractional Brownian Markets |
| title_sort | pricing option with stochastic interest rates and transaction costs in fractional brownian markets |
| url | http://dx.doi.org/10.1155/2018/7056734 |
| work_keys_str_mv | AT linasong pricingoptionwithstochasticinterestratesandtransactioncostsinfractionalbrownianmarkets AT keleli pricingoptionwithstochasticinterestratesandtransactioncostsinfractionalbrownianmarkets |