MATEC Web Conf.
Volume 125, 201721st International Conference on Circuits, Systems, Communications and Computers (CSCC 2017)
|Number of page(s)||5|
|Published online||04 October 2017|
On a Generalized Squared Gaussian Diffusion Model for Option Valuation
1 Department of Mathematics, Covenant University, Ota, Zip Code: 112212, Nigeria
2 Department of Mathematics, University of Ibadan, Ibadan, Zip Code: 200221, Nigeria
* Corresponding author: firstname.lastname@example.org
In financial mathematics, option pricing models are vital tools whose usefulness cannot be overemphasized. Modern approaches and modelling of financial derivatives are therefore required in option pricing and valuation settings. In this paper, we derive via the application of Ito lemma, a pricing model referred to as Generalized Squared Gaussian Diffusion Model (GSGDM) for option pricing and valuation. Same approach can be considered via Stratonovich stochastic dynamics. We also show that the classical Black-Scholes, and the square root constant elasticity of variance models are special cases of the GSGDM. In addition, general solution of the GSGDM is obtained using modified variational iterative method (MVIM).
© The Authors, published by EDP Sciences, 2017
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