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 that the use of options whose prices were fixed by the Black-Scholes formula.

16 pages, 5 figures

References in corpus (2)

• Green function of the double fractional Fokker-Planck equation: Path integral and stochastic differential equations
• The world according to Renyi: Thermodynamics of multifractal systems

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