On arbitrage and replication in the fractional Black–Scholes pricing model

Tommi Sottinen () and Valkeila Esko

Statistics & Risk Modeling, 2003, vol. 21, issue 2, 93-108

Abstract: It has been proposed that the arbitrage possibility in the fractional Black-Scholes model depends on the definition of the stochastic integral. More precisely, if one uses the Wick–Itô–Skorohod integral one obtains an arbitrage-free model. However, this integral does not allow economical interpretation. On the other hand it is easy to give arbitrage examples in continuous time trading with self-financing strategies, if one uses the Riemann-Stieltjes integral. In this note we discuss the connection between two different notions of self-financing portfolios in the fractional Black–Scholes model by applying the known connection between these two integrals. In particular, we give an economical interpretation of the proposed arbitrage-free model in terms of Riemann–Stieltjes integrals.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Downloads: (external link)
https://doi.org/10.1524/stnd.21.2.93.19003 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:strimo:v:21:y:2003:i:2/2003:p:93-108:n:7

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/strm/html

DOI: 10.1524/stnd.21.2.93.19003

Access Statistics for this article

Statistics & Risk Modeling is currently edited by Robert Stelzer

More articles in Statistics & Risk Modeling from De Gruyter
Bibliographic data for series maintained by Peter Golla ().