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Fractional constant elasticity of variance model

Ngai Hang Chan·Chi Tim Ng
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Abstract

This paper develops a European option pricing formula for fractional market models. Although there exist option pricing results for a fractional Black-Scholes model, they are established without accounting for stochastic volatility. In this paper, a fractional version of the Constant Elasticity of Variance (CEV) model is developed. European option pricing formula similar to that of the classical CEV model is obtained and a volatility skew pattern is revealed.

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Ngai Hang Chan, Chi Tim Ng. 2007-02-27. Fractional constant elasticity of variance model. https://doi.org/10.1214/074921706000001012

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