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Hagan, P.S., Kumar, D., Lesniewski, A.S. and Woodward, D.E. (2002) Managing Smile Risk. In: Wilmott, P., Ed., The Best of Wilmott, Wiley, Hoboken, 249-296.

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• TITLE: Geometric Fractional Brownian Motion Perturbed by Fractional Ornstein-Uhlenbeck Process and Application on KLCI Option Pricing

  AUTHORS: Mohammed Alhagyan, Masnita Misiran, Zurni Omar

  KEYWORDS: Geometric Fractional Brownian Motion, Fractional Ornstein-Uhlenbeck Process, Long Memory Stochastic Volatility, Innovation Algorithm, Constraint Transcription Method, Segmentation, Option Pricing, KLCI

  JOURNAL NAME: Open Access Library Journal, Vol.3 No.8, August 19, 2016

  ABSTRACT: This paper presents an enhanced model of geometric fractional Brownian motion where its volatility is assumed to be stochastic volatility model that obeys fractional Ornstein-Uhlenbeck process. The method of estimation for all parameters (α, β, m, μ, H1, and H2) in this model is derived. We calculated the value of European call option using the estimates based on the methods of Masnita [1] [2] and Kukush [3], traditional Black-Scholes European option price, in addition to proposed model in order to make comparison study.