1. On the Quantitative Properties of Some Market Models Involving Fractional Derivatives.
- Author
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Aguilar, Jean-Philippe, Korbel, Jan, and Pesci, Nicolas
- Subjects
MARKETING models ,HOUSING market ,PSEUDODIFFERENTIAL operators ,MARKET volatility ,FRACTIONAL differential equations - Abstract
We review and discuss the properties of various models that are used to describe the behavior of stock returns and are related in a way or another to fractional pseudo-differential operators in the space variable; we compare their main features and discuss what behaviors they are able to capture. Then, we extend the discussion by showing how the pricing of contingent claims can be integrated into the framework of a model featuring a fractional derivative in both time and space, recall some recently obtained formulas in this context, and derive new ones for some commonly traded instruments and a model involving a Riesz temporal derivative and a particular case of Riesz–Feller space derivative. Finally, we provide formulas for implied volatility and first- and second-order market sensitivities in this model, discuss hedging and profit and loss policies, and compare with other fractional (Caputo) or non-fractional models. [ABSTRACT FROM AUTHOR] more...
- Published
- 2021
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