Pricing Foreign Exchange Option Under Fractional Jump-Diffusions.docVIP

Pricing Foreign Exchange Option Under Fractional Jump-Diffusions 　　Abstract： Foreign exchange option， as afinancial derivative， plays an important role in thefinancial market. It is of great theoretical and practical significance to study the foreign exchange options， especially its pricing model. In order to more accurately portray the authenticity of foreign exchange market， this paper applies fractional Brown motion in the fractal market hypothesis and combines with jump diffusion process so as to establish the pricing model of foreign exchange option. Moreover， this paper put forward the pricing formulas of European foreign exchange call and put option， as well as their relationships by using the method of insurance actuary pricing. No matter whether thefinancial market has arbitrage or not， no matter it is complete or not， this conclusion is valid. 　　Key words： Fractional Brownian motion； Jump-diffusion； Insurance actuary pricing； Foreign exchange option 　　In 1989， Peters proposed a fractal market hypothesis， and proved that there was fractal structure with non-periodic cycle in different capital market. Fractal market hypothesis does not depend on such assumptions of exchange ratefluctuations as the independent and normal distribution assumptions. What’s more， fractional Brownian motion can better explain many phenomena in foreign exchange market， such as the“thick tail”and long-term correlation， which the efficient market hypothesis can not account for. Therefore， creating a foreign exchange option pricing model by fractional Brownian motion in the fractal market hypothesis， we can more accurately portray the authenticity of the market. In 2000， Hu [1] introduced Wick integral in fractional Brownian motion， and in 2003 [2]， developed Wick integral in fractional Brownian motion when Hurst exponent H 0.5 through fractional white noise. Bender [3] and Elliott [4] promote Wick integral of fractional Brownian motion to the case of Hurst exponent H∈（0，1）， a