CONDITIONAL-MEAN HEDGING UNDER TRANSACTION COSTS IN GAUSSIAN MODELS

Tommi Sottinen () and Lauri Viitasaari ()
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Tommi Sottinen: Department of Mathematics and Statistics, University of Vaasa, Vaasa, P. O. Box 700, FIN-65101 Vaasa, Finland
Lauri Viitasaari: Department of Mathematics and System Analysis, Aalto University School of Science, Helsinki, P. O. Box 11100, FIN-00076 Aalto, Finland

International Journal of Theoretical and Applied Finance (IJTAF), 2018, vol. 21, issue 02, 1-15

Abstract: We consider so-called regular invertible Gaussian Volterra processes and derive a formula for their prediction laws. Examples of such processes include the fractional Brownian motions and the mixed fractional Brownian motions. As an application, we consider conditional-mean hedging under transaction costs in Black–Scholes type pricing models where the Brownian motion is replaced with a more general regular invertible Gaussian Volterra process.

Keywords: Delta-hedging; option pricing; prediction; transaction costs (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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DOI: 10.1142/S0219024918500152

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