Applied Mathematics & Information Sciences

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In financial and option pricing setting, one-factor model denotes the notion that there exists one Wiener process in the definition of the short-rate process indicating one source of randomness. In this paper, approximate-analytical solution of a time- fractional one-factor Markovian model for bond pricing is considered using the approach of conformable decomposition. The method is a modified version of Adomian decomposition coupled with fractional derivative defined in conformable sense. Illustrative examples are presented in order to clarify the effectiveness of the proposed solution method, and the solutions are presented graphically based on some financial parameters at different values of the time-fractional order. This approach can be extended to multi-factor models formulated in terms of stochastic dynamics.

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