Method and system for non-Gaussian pricing of options and...

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Reexamination Certificate

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Reexamination Certificate

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07599871

ABSTRACT:
In preferred embodiments, a method and system for pricing a derivative (e.g., a stock option) based on a non-Gaussian price model assuming statistical feedback. The dynamics of the underlying financial instrument (e.g., stock) are assumed to follow a stochastic process with anomalous nonlinear diffusion, phenomenologically modeled as a statistical feedback process within the framework of a generalized thermostatistics. Preferred embodiments implement solutions to a generalized form of the Black-Scholes differential equation, using risk-free asset valuation techniques in some cases.

REFERENCES:
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Borland, L: Nonextensive statistical mechanics and economics, 2003, Physica A 324, pp. 89-100.
Borland, L: Option pricing formulas based on a non-gaussian stock price model, Aug. 26, 2002, Physical Review Letters, vol. 89, No. 9, pp. 098701-4.
Nonextensive Entropy-Interdisciplinary Applications, edited by M. Gell-Mann and C. Tsallis, Oxford University Press, Jul. 2004 (title page, table of contents, and a reprint of pp. 305-320 (odd-numbered pages only).
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