European option pricing under the approximate fractional Heston jump–diffusion model with a stochastic long-term mean

doi:10.1016/j.aej.2025.03.045

LZUFE-KMS

	European option pricing under the approximate fractional Heston jump–diffusion model with a stochastic long-term mean
	Wang, Yubing; Bai, Yanan
	2025-06
发表期刊	Alexandria Engineering Journal
卷号	123 页码:145-156
摘要	To address the limitations of the traditional Heston model, which fails to capture asset price jumps, long-range dependence, and the term structure of implied volatility and variance swap curves, this study proposes an enhanced approximate fractional jump-diffusion Heston model with a stochastic long-term mean. The model incorporates an approximate fractional Brownian motion, which not only captures long-range dependence but also addresses the interpretability issues commonly associated with fractional Brownian motion in financial applications. Additionally, a stochastic long-term mean is introduced to model the evolving volatility term structure, and an asymmetric double-exponential jump process is used to characterize asset price jumps. This triple enhancement provides a more realistic representation of market dynamics. We derive an approximate analytical solution for European call options, offering significant computational efficiency and practical utility. Compared to Monte Carlo simulations, the analytical solution reduces computational costs and enables rapid parameter calibration, making it highly suitable for real-world applications. Numerical analyses confirm the model's convergence and stability, while empirical results demonstrate its superior pricing accuracy over both He's model and the traditional Heston model. © 2025 The Authors
关键词	Brownian movement - Computational cost - Computational efficiency - Costs - Monte Carlo methods - Stochastic systems Approximate fractional jump-diffusion heston model - Asset prices - Empirical studies - European option - European option pricing - Heston model - Jump-diffusion - Options pricing - Stochastic long-term mean - Stochastics
DOI	10.1016/j.aej.2025.03.045
收录类别	EI
ISSN	1110-0168
语种	英语
出版者	Elsevier B.V.
EI入藏号	20251318110815
EI主题词	Stochastic models
EI分类号	801.3 Physical Chemistry - 911 Cost and Value Engineering ; Industrial Economics - 911.1 Cost Accounting - 1102.1 Computer Theory, Includes Computational Logic, Automata Theory, Switching Theory, Programming Theory - 1106 Computer Software, Data Handling and Applications - 1202.1 Probability Theory - 1202.2 Mathematical Statistics
原始文献类型	Journal article (JA)
文献类型	期刊论文
条目标识符	http://ir.lzufe.edu.cn/handle/39EH0E1M/38942
专题	兰州财经大学
通讯作者	Wang, Yubing
作者单位	School of Statistics and Data Science, Lanzhou University of Finance and Economics, Gansu, Lanzhou; 730020, China
第一作者单位	统计与数据科学学院
通讯作者单位	统计与数据科学学院
推荐引用方式 GB/T 7714	Wang, Yubing,Bai, Yanan. European option pricing under the approximate fractional Heston jump–diffusion model with a stochastic long-term mean[J]. Alexandria Engineering Journal,2025,123:145-156.
APA	Wang, Yubing,&Bai, Yanan.(2025).European option pricing under the approximate fractional Heston jump–diffusion model with a stochastic long-term mean.Alexandria Engineering Journal,123,145-156.
MLA	Wang, Yubing,et al."European option pricing under the approximate fractional Heston jump–diffusion model with a stochastic long-term mean".Alexandria Engineering Journal 123(2025):145-156.