Abstract
In this paper, the authors discuss the fractional option pricing with Black–Scholes formula, deduce the Fractional Black–Scholes formula, show the empirical results by using China merchants bank foreign exchange call option price, and find when the volatility is smaller, the asymptotic mean squared error of Fractional Black–Scholes is bigger than the Traditional Black–Scholes’, while the volatility is bigger—the market mechanism has a full play, the result is reverse. Namely when the market mechanism is given a full scope, the estimating effect of Fractional Black–Scholes is better than Traditional Black–Scholes’.
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Meng, L., Wang, M. Comparison of Black–Scholes Formula with Fractional Black–Scholes Formula in the Foreign Exchange Option Market with Changing Volatility. Asia-Pac Financ Markets 17, 99–111 (2010). https://doi.org/10.1007/s10690-009-9102-8
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DOI: https://doi.org/10.1007/s10690-009-9102-8