A spectral approach using fractional Jaiswal functions to solve the mixed time-fractional Black-Scholes European option pricing model with error analysis

In this paper, we propose a collocation scheme for efficiently solving the mixed time-fractional Black-Scholes (MTF-BS) model and obtaining the option price. Our approach involves deriving the mixed fractional Black-Scholes (MF-BS) partial differential equation (PDE) considering the delta hedging strategy and the mixed fractional Geometric Brownian motion (MFGBM) model. To simplify the problem, we transform the MTF-BS PDE into a modified Riemann-Liouville derivative form. Subsequently, a collocation method is employed to numerically solve the transformed equation, where the solution is represented as a series of fractional Jaiswal functions with unknown coefficients. By utilizing operational matrices and collocation points, we convert the problem into a linear system of equations, allowing for the examination of convergence and stability in the Sobolev spaces. Finally, we present four examples to demonstrate the method’s effectiveness and accuracy.