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On the fractional Black-Scholes market with transaction costs

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  • Ehsan Azmoodeh

Abstract

We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance $n^{-1}$ between trading times. We derive a non trivial hedging error for a class of European options with convex payoff in the case when the transaction costs coefficients decrease as $n^{-(1-H)}$. We study the expected hedging error and asymptotic behavior of the hedge as $H \to 1/2$

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  • Ehsan Azmoodeh, 2010. "On the fractional Black-Scholes market with transaction costs," Papers 1005.0211, arXiv.org.
    • Handle: RePEc:arx:papers:1005.0211
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    References listed on IDEAS

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    1. Sottinen Tommi & Valkeila Esko, 2003. "On arbitrage and replication in the fractional Black–Scholes pricing model," Statistics & Risk Modeling, De Gruyter, vol. 21(2), pages 93-108, February.
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    6. Paolo Guasoni & Miklós Rásonyi & Walter Schachermayer, 2010. "The fundamental theorem of asset pricing for continuous processes under small transaction costs," Annals of Finance, Springer, vol. 6(2), pages 157-191, March.
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