Lookback Option Pricing with Fixed Proportional Transaction Costs under Fractional Brownian Motion
Keyword(s):
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.
2016 ◽
Vol 03
(01)
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pp. 1650003
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Keyword(s):
2011 ◽
Vol 48
(01)
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pp. 145-153
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2017 ◽
Vol 22
(1)
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pp. 161-180
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Keyword(s):
2006 ◽
Vol 16
(3)
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pp. 569-582
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