Optimal exercise boundary of American fractional lookback option in a mixed jump-diffusion fractional Brownian motion environment

DOI10.1155/2017/5904125MaRDI QIDQ1992912zbMATH OpenOpenAlexWikidataFDO

Authors Zhaoqiang Yang

Publication date 5 November 2018

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/10.1155/2017/5904125

Mathematics Subject Classification ID

Fractional processes, including fractional Brownian motion (60G22) Applications of stochastic analysis (to PDEs, etc.) (60H30) Jump processes on discrete state spaces (60J74) Derivative securities (option pricing, hedging, etc.) (91G20) Optimal stochastic control (93E20)

Review text

Summary: A new framework for pricing the American fractional lookback option is developed in the case where the stock price follows a mixed jump-diffusion fraction Brownian motion. By using Itô formula and Wick-Itô-Skorohod integral a new market pricing model is built. The fundamental solutions of stochastic parabolic partial differential equations are estimated under the condition of Merton assumptions. The explicit integral representation of early exercise premium and the critical exercise price are also given. Numerical simulation illustrates some notable features of American fractional lookback options.

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Cited in

(10)

• Default probability of American lookback option in a mixed jump-diffusion model
• The pricing and numerical analysis of lookback options for mixed fractional Brownian motion
• Equity-linked security pricing and greeks at arbitrary intermediate times using Brownian bridge
• Numerical solution method of European lookback option pricing model under mixed jump-diffusion fractional Brownian motion
• American fractional lookback options: valuation and premium decomposition
• Pricing European lookback option in a special kind of mixed jump-diffusion Black-Scholes model
• Pricing European lookback option by a special kind of mixed jump-diffusion model
• A new stopping problem and the critical exercise price for American fractional lookback option in a special mixed jump-diffusion model
• Optimal investment and life insurance strategies in a mixed jump-diffusion framework
• Critical exercise price for American floating strike lookback option in a mixed jump-diffusion model

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