Classical option pricing schemes assume that the value of a financial asset follows a geometric Brownian motion (GBM). However, a growing body of studies suggest that a simple GBM trajectory is not an adequate representation for asset dynamics due to
irregularities found when comparing its properties with empirical distributions. As a solution, we develop a generalisation of GBM where the introduction of a memory kernel critically determines the behavior of the stochastic process. We find the general expressions for the moments, log-moments, and the expectation of the periodic log returns, and obtain the corresponding probability density functions by using the subordination approach. Particularly, we consider subdiffusive GBM (sGBM), tempered sGBM, a mix of GBM and sGBM, and a mix of sGBMs. We utilise the resulting generalised GBM (gGBM) to examine the empirical performance of a selected group of kernels in the pricing of European call options. Our results indicate that the performance of a kernel ultimately depends on the maturity of the option and its moneyness.
We study a diffusion process on a three-dimensional comb under stochastic resetting. We consider three different types of resetting: global resetting from any point in the comb to the initial position, resetting from a finger to the corresponding bac
kbone and resetting from secondary fingers to the main fingers. The transient dynamics along the backbone in all three cases is different due to the different resetting mechanisms, finding a wide range of dynamics for the mean squared displacement. For the particular geometry studied herein, we compute the stationary solution and the mean square displacement and find that the global resetting breaks the transport in the three directions. Regarding the resetting to the backbone, the transport is broken in two directions but it is enhanced in the main axis. Finally, the resetting to the fingers enhances the transport in the backbone and the main fingers but reaches a steady value for the mean squared displacement in the secondary fingers.
We study generalized diffusion-wave equation in which the second order time derivative is replaced by integro-differential operator. It yields time fractional and distributed order time fractional diffusion-wave equations as particular cases. We cons
ider different memory kernels of the integro-differential operator, derive corresponding fundamental solutions, specify the conditions of their non-negativity and calculate mean squared displacement for all cases. In particular, we introduce and study generalized diffusion-wave equations with regularized Prabhakar derivative of single and distributed orders. The equations considered can be used for modeling broad spectrum of anomalous diffusion processes and various transitions between different diffusion regimes.
We present a short overview of the recent results in the theory of diffusion and wave equations with generalised derivative operators. We give generic examples of such generalised diffusion and wave equations, which include time-fractional, distribut
ed order, and tempered time-fractional diffusion and wave equations. Such equations exhibit multi-scaling time behaviour, which makes them suitable for the description of different diffusive regimes and characteristic crossover dynamics in complex systems.
A Cattaneo equation for a comb structure is considered. We present a rigorous analysis of the obtained fractional diffusion equation, and corresponding solutions for the probability distribution function are obtained in the form of the Fox $H$-functi
on and its infinite series. The mean square displacement along the backbone is obtained as well in terms of the infinite series of the Fox $H$-function. The obtained solutions describe the transition from normal diffusion to subdiffusion, which results from the comb geometry.
Based on the theory of continuous time random walks (CTRW), we build the models of characterizing the transitions among anomalous diffusions with different diffusion exponents, often observed in natural world. In the CTRW framework, we take the waiti
ng time probability density function (PDF) as an infinite series in three parameter Mittag-Leffler functions. According to the models, the mean squared displacement of the process is analytically obtained and numerically verified, in particular, the trend of its transition is shown; furthermore the stochastic representation of the process is presented and the positiveness of the PDF of the position of the particles is strictly proved. Finally, the fractional moments of the model are calculated, and the analytical solutions of the model with external harmonic potential are obtained and some applications are proposed.
We give an exact analytical results for diffusion with a power-law position dependent diffusion coefficient along the main channel (backbone) on a comb and grid comb structures. For the mean square displacement along the backbone of the comb we obtai
n behavior $langle x^2(t)ranglesim t^{1/(2-alpha)}$, where $alpha$ is the power-law exponent of the position dependent diffusion coefficient $D(x)sim |x|^{alpha}$. Depending on the value of $alpha$ we observe different regimes, from anomalous subdiffusion, superdiffusion, and hyperdiffusion. For the case of the fractal grid we observe the mean square displacement, which depends on the fractal dimension of the structure of the backbones, i.e., $langle x^2(t)ranglesim t^{(1+ u)/(2-alpha)}$, where $0< u<1$ is the fractal dimension of the backbones structure. The reduced probability distribution functions for both cases are obtained by help of the Fox $H$-functions.
An exact analytical analysis of anomalous diffusion on a fractal mesh is presented. The fractal mesh structure is a direct product of two fractal sets which belong to a main branch of backbones and side branch of fingers. The fractal sets of both bac
kbones and fingers are constructed on the entire (infinite) $y$ and $x$ axises. To this end we suggested a special algorithm of this special construction. The transport properties of the fractal mesh is studied, in particular, subdiffusion along the backbones is obtained with the dispersion relation $langle x^2(t)ranglesim t^{beta}$, where the transport exponent $beta<1$ is determined by the fractal dimensions of both backbone and fingers. Superdiffusion with $beta>1$ has been observed as well when the environment is controlled by means of a memory kernel.
Comb geometry, constituted of a backbone and fingers, is one of the most simple paradigm of a two dimensional structure, where anomalous diffusion can be realized in the framework of Markov processes. However, the intrinsic properties of the structur
e can destroy this Markovian transport. These effects can be described by the memory and spatial kernels. In particular, the fractal structure of the fingers, which is controlled by the spatial kernel in both the real and the Fourier spaces, leads to the Levy processes (Levy flights) and superdiffusion. This generalization of the fractional diffusion is described by the Riesz space fractional derivative. In the framework of this generalized fractal comb model, Levy processes are considered, and exact solutions for the probability distribution functions are obtained in terms of the Fox $H$-function for a variety of the memory kernels, and the rate of the superdiffusive spreading is studied by calculating the fractional moments. For a special form of the memory kernels, we also observed a competition between long rests and long jumps. Finally, we considered the fractional structure of the fingers controlled by a Weierstrass function, which leads to the power-law kernel in the Fourier space. It is a special case, when the second moment exists for superdiffusion in this competition between long rests and long jumps.
We present a physical example, where a fractional (both in space and time) Schrodinger equation appears only as a formal effective description of diffusive wave transport in complex inhomogeneous media. This description is a result of the parabolic e
quation approximation that corresponds to the paraxial small angle approximation of the fractional Helmholtz equation. The obtained effective quantum dynamics is fractional in both space and time. As an example, Levy flights in an infinite potential well are considered numerically. An analytical expression for the effective wave function of the quantum dynamics is obtained as well.
