Journal of East China Normal University(Natural Sc ›› 2012, Vol. 2012 ›› Issue (5): 85-92.

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Pricing option with transaction costs under the subdiffusive Black-Scholes model

GU Hui 1, ZHANG Yun-xiu 1,2   

  1. 1. Department of Mathematics, East China Normal University, Shanghai 200241, China; 2. Department of Mathematics, Nanjing Forest University, Nanjing 210037, China
  • Received:2011-10-01 Revised:2012-02-01 Online:2012-09-25 Published:2012-09-29

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Abstract: This paper dealt with the problem of discrete time option pricing by the subdiffusive Black-Scholes model with transaction costs. A subdiffusive geometric Brownian motion was introduced as the model of underlying asset prices exhibiting subdiffusive dynamics. In the presence of transaction costs, by a mean self-financing delta-hedging argument in a discrete time setting, a pricing formula for the European call option in discrete time
setting was obtained.

Key words: option pricing, transaction costs, subdiffusive dynamics

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