Pathwise integrals and Itô-Tanaka formula for Gaussian processes

DOI10.1007/S10959-014-0588-2MaRDI QIDQ300290zbMATH OpenOpenAlexFDO

Authors Tommi Sottinen, Lauri Viitasaari

Publication date 27 June 2016

Published in Journal of Theoretical Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1307.3578

zbMATH Keywords

Föllmer integralGaussian processesgeneralized Lebesgue-Stieltjes integralItô-Tanaka formulamathematical financepathwise stochastic integrals

Mathematics Subject Classification ID

Gaussian processes (60G15) Stochastic integrals (60H05) Derivative securities (option pricing, hedging, etc.) (91G20) Financial applications of other theories (91G80)

Abstract: We prove the Ito-Tanaka formula and the existence of pathwise stochastic integrals for a wide class of Gaussian processes. Motivated by financial applications, we define the stochastic integrals as forward-type pathwise integrals introduced by F"ollmer and as pathwise generalized Lebesgue-Stieltjes integrals introduced by Z"ahle. As an application, we illustrate the importance of Ito-Tanaka formula for pricing and hedging of financial derivatives.

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Cited in

(15)

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