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Binary market models with memory

Author

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  • Inoue, Akihiko
  • Nakano, Yumiharu
  • Anh, Vo

Abstract

We construct a binary market model with memory that approximates a continuous-time market model driven by a Gaussian process equivalent to Brownian motion. We give a sufficient condition for the binary model to be arbitrage-free. In a case when arbitrage opportunities exist, we present the rate at which the arbitrage probability tends to zero.

Suggested Citation

  • Inoue, Akihiko & Nakano, Yumiharu & Anh, Vo, 2007. "Binary market models with memory," Statistics & Probability Letters, Elsevier, vol. 77(3), pages 256-264, February.
    • Handle: RePEc:eee:stapro:v:77:y:2007:i:3:p:256-264
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    References listed on IDEAS

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    1. Tommi Sottinen, 2001. "Fractional Brownian motion, random walks and binary market models," Finance and Stochastics, Springer, vol. 5(3), pages 343-355.
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