The continuity and estimates of a solution to mixed fractional constant elasticity of variance system with stochastic volatility and the pricing of vulnerable options

Abstract

Abstract Stochastic volatility models play an important role in finance modeling. Under a mixed fractional Brownian motion environment, we study the continuity and estimates of a solution to a kind of stochastic differential equations with double volatility terms. Besides, we propose to price the vulnerable option with the discretization method and present the results using a Monte Carlo simulation.

Keywords

• Mixed fractional constant elasticity of variance model
• Strong solution
• Existence
• Uniqueness
• Continuity