AUTHORS: S. O. Edeki, I. Adinya

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ABSTRACT: In the theory of option pricing as regards financial mathematics, one-factor model represents a view that there exists one Wiener process in the definition of the short rate process indicating one source of randomness. In this paper, approximate-analytical solution of a time-fractional one-factor Markovian model for bond pricing is considered using a coupled technique referred to as Fractional Complex Transform (FCT) with the aid of modified differential transform method. The derivatives are defined in terms of Jumarie’s sense. Illustrations are considered with a view to clarifying the effectiveness of the proposed solution method, and the solutions are presented graphically based on some financial parameters at different values of the time-fractional order. It is noted that the method requires little knowledge of fractional calculus while obtaining the approximate-analytical solutions of fractional equations without neglecting or compromising the associated accuracy. In terms of extension, the approach can be extended to multi-factor models formulated in terms of stochastic dynamics

KEYWORDS: - Option pricing; Black Scholes model; RDTM; Fractional derivative; Analytical solutions; Markov process

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