Pricing of American carbon emission derivatives and numerical method under the mixed fractional Brownian motion
type: Item
instance of: scholarly article
title: Pricing of American carbon emission derivatives and numerical method under the mixed fractional Brownian motion
zbMATH Open document ID: 1465.91130
DOI: 10.1155/2021/6612284
author: Yuling Wang
author: Jing Wang
published in: Discrete Dynamics in Nature and Society
publication date: 2021-07-02T00:00:00Z
review text: Summary: This paper studies the pricing of American carbon emission derivatives and its numerical method under the mixed fractional Brownian motion. To capture the long memory properties such as self-similarity and long-range dependence in the price process, we proposed a model based on a fractional Black-Scholes, which is more in line with the actual characteristics of the option market. We have outlined a power penalty approach using parabolic variation inequality and linear complementarity (LCP) which arises from mixed fractional Brownian motion. In addition, we introduced a nonuniform grid-based modification of the fitted finite volume method for numerical solution. Numerically, we show the impact of Hurst exponent on the pricing and analyze the convergence rates of the proposed penalty method. In conclusion, since mfBm is a well-developed mathematical model of strongly correlated stochastic processes, this model will be an efficient model for pricing carbon financial derivative.
Mathematics Subject Classification ID: 91G60
Mathematics Subject Classification ID: 60G22
Mathematics Subject Classification ID: 60H30
zbMATH DE Number: 7367230
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1155/2021/6612284
OpenAlex ID: W3145769642
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description: scientific article; zbMATH DE number 7367230