An Analysis of the Fractional-Order Option Pricing Problem for Two Assets by the Generalized Laplace Variational Iteration Approach
Issued Date
2022-11-01
Resource Type
eISSN
25043110
Scopus ID
2-s2.0-85149529905
Journal Title
Fractal and Fractional
Volume
6
Issue
11
Rights Holder(s)
SCOPUS
Bibliographic Citation
Fractal and Fractional Vol.6 No.11 (2022)
Suggested Citation
Ampun S., Sawangtong P., Sawangtong W. An Analysis of the Fractional-Order Option Pricing Problem for Two Assets by the Generalized Laplace Variational Iteration Approach. Fractal and Fractional Vol.6 No.11 (2022). doi:10.3390/fractalfract6110667 Retrieved from: https://repository.li.mahidol.ac.th/handle/20.500.14594/86910
Title
An Analysis of the Fractional-Order Option Pricing Problem for Two Assets by the Generalized Laplace Variational Iteration Approach
Author(s)
Other Contributor(s)
Abstract
An option is the right to buy or sell a good at a predetermined price in the future. For customers or financial companies, knowing an option’s pricing is crucial. It is well recognized that the Black–Scholes model is an effective tool for estimating the cost of an option. The Black–Scholes equation has an explicit analytical solution known as the Black–Scholes formula. In some cases, such as the fractional-order Black–Scholes equation, there is no closed form expression for the modified Black–Scholes equation. This article shows how to find the approximate analytic solutions for the two-dimensional fractional-order Black–Scholes equation based on the generalized Riemann–Liouville fractional derivative. The generalized Laplace variational iteration method, which incorporates the generalized Laplace transform with the variational iteration method, is the methodology used to discover the approximate analytic solutions to such an equation. The expression of the two-parameter Mittag–Leffler function represents the problem’s approximate analytical solution. Numerical investigations demonstrate that the proposed scheme is accurate and extremely effective for the two-dimensional fractional-order Black–Scholes Equation in the perspective of the generalized Riemann–Liouville fractional derivative. This guarantees that the generalized Laplace variational iteration method is one of the effective approaches for discovering approximate analytic solutions to fractional-order differential equations.