Scaling and long-range dependence in option pricing III: A fractional version of the Merton model with transaction costs

Abstract: A model for option pricing of fractional version of the Merton model with ‘Hurst exponent’ being in is established with transaction costs. In particular, for the minimal price of an option under transaction costs is obtained, which displays that the timestep and the ‘Hurst exponent’ play an important role in option pricing with transaction costs. [Copyright &y& Elsevier]