Nonparametric estimation of fractional option pricing model

DOI10.1155/2020/8858821MaRDI QIDQ826418zbMATH OpenOpenAlexFDO

Authors Qing Li, Songlin Liu, Misi Zhou

Publication date 4 January 2021

Published in Mathematical Problems in Engineering (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://doi.org/10.1155/2020/8858821

Mathematics Subject Classification ID

Fractional processes, including fractional Brownian motion (60G22) Applications of stochastic analysis (to PDEs, etc.) (60H30) Nonparametric regression and quantile regression (62G08) Applications of statistics to actuarial sciences and financial mathematics (62P05) Derivative securities (option pricing, hedging, etc.) (91G20)

Review text

Summary: The establishment of the fractional Black-Scholes option pricing model is under a major condition with the normal distribution for the state price density (SPD) function. However, the fractional Brownian motion is deemed to not be martingale with a long memory effect of the underlying asset, so that the estimation of the state price density (SPD) function is far from simple. This paper proposes a convenient approach to get the fractional option pricing model by changing variables. Further, the option price is transformed as the integral function of the cumulative density function (CDF), so it is not necessary to estimate the distribution function individually by complex approaches. Finally, it encourages to estimate the fractional option pricing model by the way of nonparametric regression and makes empirical analysis with the traded 50 ETF option data in Shanghai Stock Exchange (SSE).

Recommendations

• Option pricing under the fractional stochastic volatility model
• Nonparametric estimates of option prices and related quantities
• State price density estimation via nonparametric mixtures
• Affine fractional stochastic volatility models
• Nonparametric option pricing under shape restrictions

Cites work

• A proof for French's empirical formula on option pricing.
• Fractional Brownian Motions, Fractional Noises and Applications
• FRACTIONAL WHITE NOISE CALCULUS AND APPLICATIONS TO FINANCE
• Hermite polynomial based expansion of European option prices
• scientific article; zbMATH DE number 991833 (Why is no real title available?)
• scientific article; zbMATH DE number 2104212 (Why is no real title available?)
• Maximum Likelihood Estimation of Discretely Sampled Diffusions: A Closed-form Approximation Approach
• Nonparametric risk management and implied risk aversion
• Option pricing in fractional Brownian markets
• Option pricing of a mixed fractional-fractional version of the Black-Scholes model
• Option pricing of fractional version of the Black-Scholes model with Hurst exponent \(H\) being in \((\frac{1}{3},\frac{1}{2})\).
• Option pricing with model-guided nonparametric methods
• The pricing of options and corporate liabilities

Cited in

(1)

• scientific article; zbMATH DE number 1124633 (Why is no real title available?)

This page was built for publication: Nonparametric estimation of fractional option pricing model

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q826418)