What is it about?
This study presents an efficient method for pricing the American fractional lookback option in the case where the stock price follows a mixed jump diffusion fraction Brownian motion. By using It ô formula and Wick–It ô–Skorohod integral, a new market pricing model is built. The fundamental solutions of stochastic parabolic partial differential equations are estimated under the condition of Merton assumptions. The explicit integral representation of early exercise premium and the critical exercise price are also given. Numerical simulation illustrates some notable features of American fractional lookback options
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Why is it important?
By using It ô formula and Wick–It ô–Skorohod integral, a new market pricing model is built.
Perspectives
It is very difficult to calculate nonlinear integral terms.
Zhaoqiang Yang
Read the Original
This page is a summary of: Efficient valuation and exercise boundary of American fractional lookback option in a mixed jump-diffusion model, International Journal of Financial Engineering, June 2017, World Scientific Pub Co Pte Lt,
DOI: 10.1142/s2424786317500335.
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