Michael, Fredrick; Johnson, M.D. - In: Physica A: Statistical Mechanics and its Applications 324 (2003) 1, pp. 359-365
We examine how the Black–Scholes derivative pricing formula is modified when the underlying security obeys non-extensive statistics and Fokker–Planck dynamics. An unusual feature of such securities is that the volatility in the underlying Ito–Langevin equation depends implicitly on the...