ASYMPTOTIC ARBITRAGE IN THE HESTON MODEL

Fatma Haba () and Antoine Jacquier ()
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Fatma Haba: Department of Mathematics, Université Tunis El Manar, Tunisia

International Journal of Theoretical and Applied Finance (IJTAF), 2015, vol. 18, issue 08, 1-18

Abstract: In this paper, we introduce a new form of asymptotic arbitrage, which we call a partial asymptotic arbitrage, half-way between those of Föllmer & Schachermayer (2007) [Mathematics and Financial Economics 1 (34), 213–249] and Kabanov & Kramkov (1998) [Finance and Stochastics 2, 143–172]. In the context of the Heston model, we establish a precise link between the set of equivalent martingale measures, the ergodicity of the underlying variance process and this partial asymptotic arbitrage. In contrast to Föllmer & Schachermayer (2007) [Mathematics and Financial Economics 1 (34), 213–249], our result does not assume a suitable condition on the stock price process to allow for (partial) asymptotic arbitrage.

Keywords: Stochastic volatility model; Heston model; asymptotic arbitrage; large deviations (search for similar items in EconPapers)
Date: 2015
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Working Paper: Asymptotic arbitrage in the Heston model (2014)
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DOI: 10.1142/S0219024915500557

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