Lookback Option Pricing with Fixed Proportional Transaction Costs under Fractional Brownian Motion. (3rd November 2014)

• Record Type: Journal Article
• Authors: Sun, Jiao-Jiao; Zhou, Shengwu; Zhang, Yan; Han, Miao; Wang, Fei
• Other Names: Zirilli Francesco Academic Editor.
• Is Part Of: International scholarly research notices. Volume 2014(2014)
• Publication Date: 2014-11-03
• Subjects: Medical sciences -- Periodicals; Life sciences -- Periodicals; Medicine -- Periodicals; Science -- Periodicals; Biomedical Technology; Biological Science Disciplines; Medicine; Life sciences; Medical sciences; Medicine; Science; Periodical; Periodicals; Fulltext; Internet Resources; Periodicals; Electronic journals
• DOI: 10.1155/2014/746196
• Languages: English
• ISSNs: 2356-7872

Abstract

Abstract : The pricing problem of lookback option with a fixed proportion of transaction costs is investigated when the underlying asset price follows a fractional Brownian motion process. Firstly, using Leland's hedging method a partial differential equation satisfied by the value of the lookback option is derived. Then we obtain its numerical solution by constructing a Crank-Nicolson format. Finally, the effectiveness of the proposed form is verified through a numerical example. Meanwhile, the impact of transaction cost rate and volatility on lookback option value is discussed.