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A Modified Black-Scholes-Merton Model for Option Pricing

Author

Listed:
  • Paula Morales-Bañuelos

    (Departamento de Estudios Empresariales, Universidad Iberoamericana Ciudad de México, Mexico City 01219, Mexico)

  • Nelson Muriel

    (Departamento de Física y Matemáticas, Universidad Iberoamericana Ciudad de México, Mexico City 01219, Mexico)

  • Guillermo Fernández-Anaya

    (Departamento de Física y Matemáticas, Universidad Iberoamericana Ciudad de México, Mexico City 01219, Mexico)

Abstract

Financial derivatives have grown in importance over the last 40 years with futures and options being actively traded on a daily basis throughout the world. The need to accurately price such financial instruments has, thus, also increased, which has given rise to several mathematical models among which is that of Black, Scholes, and Merton whose wide acceptance is partly justified by its ability to price derivatives in mature and well-developed markets. For instruments traded in emerging markets, however, the accurateness of the BSM model is unproven and new proposals need be made to face the pricing challenge. In this paper we develop a model, inspired in conformable calculus, providing greater flexibilities for these markets. After developing the theoretical aspects of the model, we present an empirical application.

Suggested Citation

  • Paula Morales-Bañuelos & Nelson Muriel & Guillermo Fernández-Anaya, 2022. "A Modified Black-Scholes-Merton Model for Option Pricing," Mathematics, MDPI, vol. 10(9), pages 1-16, April.
    • Handle: RePEc:gam:jmathe:v:10:y:2022:i:9:p:1492-:d:806322
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    References listed on IDEAS

    as
    1. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
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    4. Cipian Necula, 2008. "Option Pricing in a Fractional Brownian Motion Environment," Advances in Economic and Financial Research - DOFIN Working Paper Series 2, Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB.
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