On the Numerical Option Pricing Methods: Fractional Black-Scholes Equations with CEV Assets
This article explores a stochastic volatility model that incorporates fractional Brownian motion (fBm) into the constant elasticity of variance (CEV) framework. We use time series models to estimate the drift and volatility parameters of the model and validate its performance. We also examine the fr...
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| Veröffentlicht in: | Computational economics 2024-09, Vol.64 (3), p.1463-1488 |
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| container_title | Computational economics |
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| creator | Banihashemi, S. Ghasemifard, A. Babaei, A. |
| description | This article explores a stochastic volatility model that incorporates fractional Brownian motion (fBm) into the constant elasticity of variance (CEV) framework. We use time series models to estimate the drift and volatility parameters of the model and validate its performance. We also examine the fractional Black-Scholes (BS) equation arising from the CEV model with fBm. To solve this equation numerically, we apply a Chebyshev collocation method and analyze its convergence properties. We demonstrate the effectiveness of the numerical method with an example and apply it to the option pricing problem. |
| doi_str_mv | 10.1007/s10614-023-10482-4 |
| format | Article |
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| subjects | Applied mathematics Behavioral/Experimental Economics Black-Scholes equation Brownian motion Chebyshev approximation Collocation methods Computer Appl. in Social and Behavioral Sciences Convergence Derivatives Drift estimation Economic Theory/Quantitative Economics/Mathematical Methods Economics Economics and Finance Elasticity Interest rates Math Applications in Computer Science Methods Numerical analysis Numerical methods Operations Research/Decision Theory Parameter estimation Partial differential equations Pricing Rates of return Securities prices Stochastic models Stock prices Time series Volatility |
| title | On the Numerical Option Pricing Methods: Fractional Black-Scholes Equations with CEV Assets |
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