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Solution of the Fractional Black‐Scholes Option Pricing Model by Finite Difference Method

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  • Lina Song
  • Weiguo Wang

Abstract

This work deals with the put option pricing problems based on the time‐fractional Black‐Scholes equation, where the fractional derivative is a so‐called modified Riemann‐Liouville fractional derivative. With the aid of symbolic calculation software, European and American put option pricing models that combine the time‐fractional Black‐Scholes equation with the conditions satisfied by the standard put options are numerically solved using the implicit scheme of the finite difference method.

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Handle: RePEc:wly:jnlaaa:v:2013:y:2013:i:1:n:194286
DOI: 10.1155/2013/194286
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