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VOL. 52 | 2006 Fractional constant elasticity of variance model

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.

Information

Published: 1 January 2006
First available in Project Euclid: 28 November 2007

zbMATH: 1268.91177
MathSciNet: MR2427845

Digital Object Identifier: 10.1214/074921706000001012

Subjects:
Primary: 91B28, 91B70
Secondary: 60H15, 60H40

Rights: Copyright © 2006, Institute of Mathematical Statistics

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