Volatility Estimation and Option Pricing with Fractional Brownian Motion

22 Pages Posted: 6 Nov 2005

See all articles by Daniel O. Cajueiro

Daniel O. Cajueiro

University of Brasilia - Department of Economics

José Fajardo

Getulio Vargas Foundation

Date Written: October 27, 2005

Abstract

We study the estimation of volatility using the Fractional Brownian Motion (FBM) to model asset returns. Then, we price some European options using a Black-Scholes type formula derived for the FBM market model.

Keywords: Fractional Brownian Motion, Derivative Pricing, Hurst exponent

JEL Classification: C52, G10

Suggested Citation

Cajueiro, Daniel O. and Fajardo, José, Volatility Estimation and Option Pricing with Fractional Brownian Motion (October 27, 2005). Available at SSRN: https://ssrn.com/abstract=837765 or http://dx.doi.org/10.2139/ssrn.837765

Daniel O. Cajueiro (Contact Author)

University of Brasilia - Department of Economics ( email )

Brazil

José Fajardo

Getulio Vargas Foundation ( email )

Brazil
55213799 5781 (Phone)

HOME PAGE: http://www.josefajardo.com

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