Option pricing beyond Black-Scholes based on double-fractional diffusion
Abstract
We show how the prices of options can be determined with the help of double-fractional differential equation in such a way that their inclusion in a portfolio of stocks provides a more reliable hedge against dramatic price drops than the use of options whose prices were fixed by the Black-Scholes formula.
- Publication:
-
Physica A Statistical Mechanics and its Applications
- Pub Date:
- May 2016
- DOI:
- 10.1016/j.physa.2015.12.125
- arXiv:
- arXiv:1503.05655
- Bibcode:
- 2016PhyA..449..200K
- Keywords:
-
- Double-fractional diffusion;
- Lévy option pricing;
- Risk redistribution;
- Quantitative Finance - Risk Management
- E-Print:
- 16 pages, 5 figures
