Asian Option Pricing with Transaction Costs and Dividends under the Fractional Brownian Motion Model

The pricing problem of geometric average Asian option under fractional Brownian motion is studied in this paper. The partial differential equation satisfied by the option’s value is presented on the basis of no-arbitrage principle and fractional formula. Then by solving the partial differential equa...

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Bibliographic Details
Published in:Journal of Applied Mathematics 2014-01, Vol.2014 (2014), p.247-254-624
Main Authors: Zhang, Yan, Pan, Di, Zhou, Sheng-Wu, Han, Miao
Format: Article
Language:English
Subjects:
Asian
Brownian motion
Costs
Dividends
Mathematical models
Options (Finance)
Parity
Partial differential equations
Prices and rates
Pricing
Put & call options
Stochastic models
Stock options
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Summary:The pricing problem of geometric average Asian option under fractional Brownian motion is studied in this paper. The partial differential equation satisfied by the option’s value is presented on the basis of no-arbitrage principle and fractional formula. Then by solving the partial differential equation, the pricing formula and call-put parity of the geometric average Asian option with dividend payment and transaction costs are obtained. At last, the influences of Hurst index and maturity on option value are discussed by numerical examples.
ISSN:1110-757X
1687-0042
DOI:10.1155/2014/652954