TITLE:
Mixed Fractional Merton Model to Evaluate European Options with Transaction Costs
AUTHORS:
Foad Shokrollahi
KEYWORDS:
Transaction Costs, Mixed Fractional Brownian Motion, European Option, Merton Model
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.8 No.4,
November
7,
2018
ABSTRACT: This paper deals with the problem of discrete-time option pricing by the
mixed fractional version of Merton model with transaction costs. By a
mean-self-financing delta hedging argument in a discrete-time setting, a European
call option pricing formula is obtained. We also investigate the effect
of the time-step δt and the Hurst parameter H on our pricing option model,
which reveals that these parameters have high impact on option pricing.
The properties of this model are also explained.