Actuarial Approach to Option Pricing in a Fractional Black–Scholes Model with Time-Dependent Volatility
Volume 61 / 2013
Bulletin Polish Acad. Sci. Math. 61 (2013), 181-193
MSC: Primary 91B70; Secondary 60G15, 60G22.
DOI: 10.4064/ba61-2-12
Abstract
We study actuarial methods of option pricing in a fractional Black–Scholes model with time-dependent volatility. We interpret the option as a potential loss and we show that the fair premium needed to insure this loss coincides with the expectation of the discounted claim payoff under the average risk neutral measure.
