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Journal of Mathematics
Article . 2024 . Peer-reviewed
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Journal of Mathematics
Article . 2024
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Other literature type . 2024
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Other literature type . 2024
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New Solutions of Time- and Space-Fractional Black–Scholes European Option Pricing Model via Fractional Extension of He-Aboodh Algorithm

حلول جديدة لنموذج تسعير خيار بلاك سكولز الأوروبي الكسري للوقت والمكان عبر التمديد الكسري لخوارزمية He - Aboodh
Authors: Mubashir Qayyum; Efaza Ahmad;

New Solutions of Time- and Space-Fractional Black–Scholes European Option Pricing Model via Fractional Extension of He-Aboodh Algorithm

Abstract

The current study explores the space and time-fractional Black–Scholes European option pricing model that primarily occurs in the financial market. To tackle the complexities associated with solving models in a fractional environment, the Aboodh transform is hybridized with He’s algorithm. This facilitates in improving the efficiency and applicability of the classical homotopy perturbation method (HPM) by ensuring the rapid convergence of the series form solution. Three cases that are time-fractional scenario, space-fractional scenario, and time-space-fractional scenario are observed through graphs and tables. 2D graphical analysis is performed to depict the behaviour of a given option pricing model for varying time, stock price, and fractional parameters. Solutions of the European option pricing model at various fractional orders are also presented as 3D plots. The results obtained through these graphs unfold the interchange between time- and space-fractional derivatives, presenting a comprehensive study of option pricing under fractional dynamics. The competency of the proposed scheme is illustrated via solutions and errors throughout the fractional domain in tabular form. The validity of the He-Aboodh results is exhibited by comparison with existing errors. Analysis shows that the proposed methodology (He-Aboodh algorithm) is a valuable scheme for solving time-space-fractional models arising in business and economics.

Keywords

Social Sciences, Space (punctuation), Convergence Analysis of Iterative Methods for Nonlinear Equations, FOS: Economics and business, Higher-Order Methods, Black–Scholes model, Theory and Applications of Option Pricing Models, QA1-939, FOS: Mathematics, Econometrics, Option Pricing, Anomalous Diffusion Modeling and Analysis, Valuation of options, Volatility (finance), Numerical Analysis, Extension (predicate logic), Time-Fractional Diffusion Equation, Mathematical optimization, Fractional calculus, Applied mathematics, Computer science, Programming language, Algorithm, Economics, Econometrics and Finance, Fractional Derivatives, Operating system, Modeling and Simulation, Physical Sciences, Homotopy Analysis Method, Mathematics, Finance

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
5
Top 10%
Average
Top 10%
gold