The continuous observation of the financial markets has identified some 'stylized facts ' which challenge the conventional assumptions, promoting the born of new approaches. On  one hand, the long range dependence has been faced replacing the traditional Gauss-Wiener process (Brownian motion), characterized by their stationary independent increments, by a fractional version. On the other hand, the local volatility CEV model , is an efficient formulation which address the 'Leverage effect ' and the smile-skew phenomena  . In this paper, these two insights are merge and the fractional and mixed-fractional extension of the Constant Elasticity of Variance model are developed. Using the fractional versions of both the Ito's calculus and the Fokker-Planck equation, the transition probability density function of the asset price is obtained as a solution of a non-stationary Feller process with time-varying coefficients ; and the analytical valuation formula for the European Call Option is provided . Besides, the greeks are computed and compared with the standard case.
The continuous observation of the financial markets has identified some stylized facts which challenge the conventional assumptions, promoting the born of new approaches. On the one hand, the long-range dependence has been faced replacing the traditional Gauss-Wiener process (Brownian motion), characterized by stationary independent increments, by a fractional version. On the other hand, the CEV model addresses the Leverage effect and smile-skew phenomena , efficiently . In this paper, these two insights are merging and both the fractional and mixed-fractional extensions for the CEV model, are developed. Using the fractional versions of both the Ito's calculus and the Fokker-Planck equation, the transition probability density function of the asset price is obtained as the solution of a non-stationary Feller process with time-varying coefficients , getting an analytical valuation formula for a European Call option . Besides, the Greeks are computed and compared with the standard case.
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'stylized facts '
stylized facts
A
the
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long range
long-range
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their
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local volatility CEV model , is an efficient formulation which address the 'Leverage effect ' and the
CEV model addresses the Leverage effect and
A
, efficiently
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merge and
merging and both
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extension of the Constant Elasticity of Variance model
extensions for the CEV model,
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a
the
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; and the
, getting an
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the European Call Option is provided
a European Call option
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greeks
Greeks