A study of maximizing skew Brownian motion with applications to option pricing

J Hussain,Muhammad Afzal Soomro,Safia Amir Dahri,K.N Memon,Mehak Bano,Fuad A Awwad,Emad A.A Ismail,Hijaz Ahmad

doi:10.1016/j.jrras.2023.100732

A study of maximizing skew Brownian motion with applications to option pricing

J Hussain, Muhammad Afzal Soomro + Show 6 more

https://doi.org/10.1016/j.jrras.2023.100732

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Journal: Journal of Radiation Research and Applied Sciences

Publication Date: Nov 28, 2023

Affiliation: Quaid-e-Awam University of Engineering, Science and Technology, King Saud University, Sukkur IBA University, Lebanese American University

#skew-Brownian Motion #General Payoff + Show 8 more

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Abstract

The objective of this study is twofold. Firstly, to study the probabilistic distribution functions of maximum of skew-Brownian motion (SKBM) and stock price process driven by maximum of skew-Brownian motion. Secondly, to derive the pricing formulas of European style call options (with general payoff D(St)), contingent upon the maximum of skew-Brownian motion and stock price process driven by maximum of skew-Brownian motion. As an application of developed formulas, we have priced the binary (Cash or Nothing) options.

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