Fractional constant elasticity of variance model

Details Fractional constant elasticity of variance model Fractional constant elasticity of variance model

2007-02-27

arxiv.org/abs/math/0702810v1

IMS Lecture Notes Monograph Series 2006, Vol. 52, 149-164

Mathematics

Statistics Theory

Published at http://dx.doi.org/10.1214/074921706000001012 in the IMS Lecture Notes Monograph Series (http://www.imstat.org/p

Scientific paper

10.1214/074921706000001012

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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