A new foreign exchange model and option pricing

A new foreign exchange model is set up in our paper to describe the performance of the exchange rate between two countries, and it catches hold of the characteristics such as mean-reversion, self-similarity and long-term dependence which are widely existent in the foreign exchange market. Fortunately, we obtain the explicit solution of the price of the European foreign exchange option, which makes it convenient to compute the price. Additionally, the quantity relations between the variables and some interesting evidences are explored by comparative static analysis and these provide the valuable empiricism for investing, hedging and evading risk.