Fractional processes as models in stochastic finance

DOI10.1007/978-3-642-18412-3_3MaRDI QIDQ5198556zbMATH OpenOpenAlexFDO

Authors Christian Bender, Tommi Sottinen, Esko Valkeila

Publication date 8 August 2011

Published in Advanced Mathematical Methods for Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1004.3106

zbMATH Keywords

Approximation Fractional Brownian motionApproximation of geometric fractional Brownian motionArbitrageFractional Brownian motionHedge in fractional models

Mathematics Subject Classification ID

Gaussian processes (60G15) Stochastic integrals (60H05) Research exposition (monographs, survey articles) pertaining to game theory, economics, and finance (91-02) Stochastic models in economics (91B70) Portfolio theory (91G10)

Abstract: We survey some new progress on the pricing models driven by fractional Brownian motion cb{or} mixed fractional Brownian motion. In particular, we give results on arbitrage opportunities, hedging, and option pricing in these models. We summarize some recent results on fractional Black & Scholes pricing model with transaction costs. We end the paper by giving some approximation results and indicating some open problems related to the paper.

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• Pricing option with stochastic interest rates and transaction costs in fractional Brownian markets
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• Semimartingale properties of a generalised fractional Brownian motion and its mixtures with applications in asset pricing
• Discretization of continuous-time arbitrage strategies in financial markets with fractional Brownian motion
• Fractional stochastic differential equations with applications to finance
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