# Fractional delta hedging strategy for pricing currency options with transaction costs

## TL;DR

This paper develops a fractional delta hedging approach for pricing European currency options considering transaction costs, deriving formulas and equations, and validating the model through empirical and simulation studies.

## Contribution

It introduces a fractional Black-Scholes model with transaction costs for currency options, including new pricing formulas, Greeks, and volatility estimators.

## Key findings

- The fractional model accurately prices currency options with transaction costs.
- Empirical and simulation results confirm the model's effectiveness.
- The approach enhances traditional models by incorporating fractional dynamics.

## Abstract

This study deals with the problem of pricing European currency options in discrete time setting, whose prices follow the fractional Black Scholes model with transaction costs. Both the pricing formula and the fractional partial differential equation for European call currency options are obtained by applying the delta-hedging strategy. Some Greeks and the estimator of volatility are also provided. The empirical studies and the simulation findings show that the fractional Black Scholes with transaction costs is a satisfactory model.