paper
An extremal fractional Gaussian with a possible application to option-pricing with skew and smile
Alexander Jurisch
An extremal fractional Gaussian with a possible application to option-pricing with skew and smile
Alexander Jurisch
paper2018-04-08English
derivatives pricingarxiv
Description
We derive an extremal fractional Gaussian by employing the Lévy-Khintchine theorem and Lévian noise. With the fractional Gaussian we then generalize the Black-Scholes-Merton option-pricing formula. We obtain an easily applicable and exponentially convergent option-pricing formula for fractional markets. We also carry out an analysis of the structure of the implied volatility in this system.
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