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Pricing European and Barrier Options in the Fractional Black-Scholes Market

13 Pages Posted: 27 Oct 2008  

Ciprian Necula

University of Zurich - Department of Banking and Finance; Bucharest University of Economic Studies, Department of Money and Banking

Date Written: September 12, 2007

Abstract

The aim of this paper is to obtain the valuation formulas for European and barrier options if the underlying of the option contract is supposed to be driven by a fractional Brownian motion with Hurst parameter greater than 0.5. The paper is build upon the framework developed in Necula (2007) for the valuation of derivative products in the fractional Black-Scholes market. We also obtain a reflection principle for the fractional Brownian motion.

Keywords: fractional Brownian motion, fractional Black-Scholes market, the reflection principle for the fractional Brownian motion, mathematical finance, European option, barrier option

JEL Classification: C02, C60, G12, G13

Suggested Citation

Necula, Ciprian, Pricing European and Barrier Options in the Fractional Black-Scholes Market (September 12, 2007). Available at SSRN: https://ssrn.com/abstract=1289422 or http://dx.doi.org/10.2139/ssrn.1289422

Ciprian Necula (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Plattenstrasse 14
Z├╝rich, 8032
Switzerland

Bucharest University of Economic Studies, Department of Money and Banking ( email )

6, Romana Square, District 1
Bucharest, 010374
Romania

HOME PAGE: http://www.dofin.ase.ro/cipnec

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