CONDITIONAL-MEAN HEDGING UNDER TRANSACTION COSTS IN GAUSSIAN MODELS

DOI10.1142/S0219024918500152zbMATH Open1395.91468arXiv1708.03242OpenAlexW2745310244WikidataQ130109758 ScholiaQ130109758MaRDI QIDQ4634641FDOQ4634641

Authors: Tommi Sottinen, Lauri Viitasaari 

Publication date: 11 April 2018

Published in: International Journal of Theoretical and Applied Finance (Search for Journal in Brave)

Abstract: We consider so-called regular invertible Gaussian Volterra processes and derive a formula for their prediction laws. Examples of such processes include the fractional Brownian motions and the mixed fractional Brownian motions. As an application, we consider conditional-mean hedging under transaction costs in Black-Scholes type pricing models where the Brownian motion is replaced with a more general regular invertible Gaussian Volterra process.

Full work available at URL: https://arxiv.org/abs/1708.03242

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zbMATH Keywords

predictionoption pricingtransaction costsdelta-hedging

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Fractional processes, including fractional Brownian motion (60G22) Applications of stochastic analysis (to PDEs, etc.) (60H30)

Cites Work

• Stochastic calculus for fractional Brownian motion and related processes.
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Cited In (1)

• Hedging in fractional Black-Scholes model with transaction costs

Uses Software

• GAUSSIAN

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