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General Conditions of Weak Convergence of Discrete-Time Multiplicative Scheme to Asset Price with Memory

Author

Listed:
  • Yuliya Mishura

    (Department of Probability Theory, Statistics and Actuarial Mathematics, Taras Shevchenko National University of Kyiv, Volodymyrska 64, Kyiv 01601, Ukraine)

  • Kostiantyn Ralchenko

    (Department of Probability Theory, Statistics and Actuarial Mathematics, Taras Shevchenko National University of Kyiv, Volodymyrska 64, Kyiv 01601, Ukraine)

  • Sergiy Shklyar

    (Department of Probability Theory, Statistics and Actuarial Mathematics, Taras Shevchenko National University of Kyiv, Volodymyrska 64, Kyiv 01601, Ukraine)

Abstract

We present general conditions for the weak convergence of a discrete-time additive scheme to a stochastic process with memory in the space D [ 0 , T ] . Then we investigate the convergence of the related multiplicative scheme to a process that can be interpreted as an asset price with memory. As an example, we study an additive scheme that converges to fractional Brownian motion, which is based on the Cholesky decomposition of its covariance matrix. The second example is a scheme converging to the Riemann–Liouville fractional Brownian motion. The multiplicative counterparts for these two schemes are also considered. As an auxiliary result of independent interest, we obtain sufficient conditions for monotonicity along diagonals in the Cholesky decomposition of the covariance matrix of a stationary Gaussian process.

Suggested Citation

  • Yuliya Mishura & Kostiantyn Ralchenko & Sergiy Shklyar, 2020. "General Conditions of Weak Convergence of Discrete-Time Multiplicative Scheme to Asset Price with Memory," Risks, MDPI, vol. 8(1), pages 1-29, January.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:1:p:11-:d:314585
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    References listed on IDEAS

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    5. Viktor Bezborodov & Luca Persio & Yuliya Mishura, 2019. "Option Pricing with Fractional Stochastic Volatility and Discontinuous Payoff Function of Polynomial Growth," Methodology and Computing in Applied Probability, Springer, vol. 21(1), pages 331-366, March.
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