Coupled Transform for Approximate-Analytical Solutions of a Time-Fractional One-Factor Markovian Bond Pricing Model
2019
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
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