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Derivation and solutions of some fractional Black-Scholes equations in coarse-grained space and time. Application to Merton’s optimal portfolio. (English) Zbl 1189.91230
Summary: By using the new fractional Taylor’s series of fractional order f(x+h=E α (h α D x α f(x) where E α (·) denotes the Mittag-Leffler function, and D x α is the so-called modified Riemann-Liouville fractional derivative which we introduced recently to remove the effects of the non-zero initial value of the function under consideration, one can meaningfully consider a modeling of fractional stochastic differential equations as a fractional dynamics driven by a (usual) Gaussian white noise. One can then derive two new families of fractional Black-Scholes equations, and one shows how one can obtain their solutions. Merton’s optimal portfolio is once more considered and some new results are contributed, with respect to the modeling on one hand, and to the solution on the other hand. Finally, one makes some proposals to introduce real data and virtual data in the basic equation of stock exchange dynamics.
MSC:
91G80Financial applications of other theories (stochastic control, calculus of variations, PDE, SPDE, dynamical systems)
26A33Fractional derivatives and integrals (real functions)
35R11Fractional partial differential equations
45K05Integro-partial differential equations
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