Title

Derivative Pricing With Non-Linear Fokker-Planck Dynamics

Keywords

Black-Scholes derivative pricing; Econophysics; Non-extensive statistics

Abstract

We examine how the Black-Scholes derivative pricing formula is modified when the underlying security obeys non-extensive statistics and Fokker-Planck dynamics. An unusual feature of such securities is that the volatility in the underlying Ito-Langevin equation depends implicitly on the actual market rate of return. This complicates most approaches to valuation. Here we show that progress is possible using variations of the Cox-Ross valuation technique. © 2002 Elsevier Science B.V. All rights reserved.

Publication Date

6-1-2003

Publication Title

Physica A: Statistical Mechanics and its Applications

Volume

324

Issue

1-2

Number of Pages

359-365

Document Type

Article; Proceedings Paper

Personal Identifier

scopus

DOI Link

https://doi.org/10.1016/S0378-4371(02)01906-4

Socpus ID

0037562089 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/0037562089

This document is currently not available here.

Share

COinS