The valuation of European option with transaction costs by mixed fractional Merton model

Foad Shokrollahi

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arXiv · 1702.00152

The valuation of European option with transaction costs by mixed fractional Merton model

Foad Shokrollahi

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Abstract

This paper deals with the problem of discrete-time option pricing by the mixed fractional version of Merton model with transaction costs. By a mean-self-financing delta hedging argument in a discrete-time setting, a European call option pricing formula is obtained. We also investigate the effect of the time-step $\delta t$ and the Hurst parameter $H$ on our pricing option model, which reveals that these parameters have high impact on option pricing. The properties of this model are also explained.

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Foad Shokrollahi. 2017-02-01. The valuation of European option with transaction costs by mixed fractional Merton model. https://arxiv.org/abs/1702.00152

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