Numerical Solution of Fractional Black-Scholes Equation by Using the Multivariate Padé Approximation

By Necati Özdemir, Mehmet Yavuz. 2017

59 citations recorded by the source corpus.

In this study, a new application of multivariate Padé approximation method has been used for solving European vanilla call option pricing problem. Padé polynomials have occurred for the fractional Black-Scholes equation, according to the relations of “smaller than”, or “greater than”, between stock price and exercise price of the option. Using these polynomials, we have applied the multivariate Padé approximation method to our fractional equation and we have calculated numerical solutions of fractional Black-Scholes equation for both of two situations. The obtained results show that the multivariate Padé approximation is a very quick and accurate method for fractional Black-Scholes equation. The fractional derivative is understood in the Caputo sense.

Subfields: Finance, Modeling and Simulation, Numerical Analysis

View Paper: https://www.semanticscholar.org/paper/3379ea87fff3421dd34328d5c06a60f42c8a6d10

Citations in the corpus

• European Vanilla Option Pricing Model of Fractional Order without Singular Kernel (2018, unknown): “For example, these techniques have been used to evaluate the performance of an electrical resistance inductance and capacitance (RLC) circuit using a new fractional operator with a local and nonlocal kernel [1], to price fractional European vanilla-type options [2,3], to analyze a new model of H1N1 ”