A closed-form approximation for the fractional BlackScholes model with transaction costs
In this paper, we investigate option valuation problems under the fractional BlackScholes model. The aim is to propose a pricing formula for the European option with transaction costs, where the costs structure contains fixed costs, a cost propositional to the volume traded, and a cost proportional to the value traded. Precisely, we provide an approximate solution of the nonlinear HoggardWhalleyWilmott equation. The comparison results reveal that our approximate solutions are close to the numerical computations. Moreover, the comparison results demonstrate that the price of the European option decreases as the Hurst exponent increases.
fractional blackscholes model transaction costs option valuation fractional brownian motion