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European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics

College of Mathematics and Information Science, Henan Normal University, Xinxiang 453007, China
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Entropy 2019, 21(10), 933; https://doi.org/10.3390/e21100933
Received: 18 August 2019 / Revised: 15 September 2019 / Accepted: 23 September 2019 / Published: 25 September 2019
(This article belongs to the Collection Advances in Applied Statistical Mechanics)
This paper is devoted to the study of the pricing of European options under a non-Gaussian model. This model follows a non-extensive statistical mechanics which can better describe the fractal characteristics of price movement in the financial market. Moreover, we present a simple but precise least-square method for approximation and obtain a closed-form solution of the price of European options. The advantages of this technique are illustrated by numerical simulation, which shows that the least-squares method is better compared with Borland’s two methods in 2002 and 2004. View Full-Text
Keywords: European call option; non-extensive statistical mechanics; least-square method; error analysis European call option; non-extensive statistical mechanics; least-square method; error analysis
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Liu, L.; Cui, Y. European Option Based on Least-Squares Method under Non-Extensive Statistical Mechanics. Entropy 2019, 21, 933.

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