Solution of the Fractional Black-Scholes Option Pricing Model by Finite Difference Method

This work deals with the put option pricing problems based on the time-fractional Black-Scholes equation, where the fractional derivative is a so-called modified Riemann-Liouville fractional derivative. With the aid of symbolic calculation software, European and American put option pricing models th...

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Bibliographic Details
Published in:Abstract and Applied Analysis 2013-01, Vol.2013 (2013), p.469-478-149
Main Authors: Song, Lina, Wang, Weiguo
Format: Article
Language:English
Subjects:
Economic research
Finite element method
Mathematical research
Options (Finance)
Pricing
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Summary:This work deals with the put option pricing problems based on the time-fractional Black-Scholes equation, where the fractional derivative is a so-called modified Riemann-Liouville fractional derivative. With the aid of symbolic calculation software, European and American put option pricing models that combine the time-fractional Black-Scholes equation with the conditions satisfied by the standard put options are numerically solved using the implicit scheme of the finite difference method.
ISSN:1085-3375
1687-0409
DOI:10.1155/2013/194286