Scaling and long-range dependence in option pricing III: A fractional version of the Merton model with transaction costs

A model for option pricing of fractional version of the Merton model with ‘Hurst exponent’ H being in [1/2,1) is established with transaction costs. In particular, for H∈(1/2,1) the minimal price C_min(t,S_t) of an option under transaction costs is obtained, which displays that the timestep δt and the ‘Hurst exponent’ H play an important role in option pricing with transaction costs.