Pricing derivatives in Hermite markets

Stoyan V. Stoyanov, Svetlozar T. Rachev, Stefan Mittnik and Frank Fabozzi ()

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Abstract: We present a new framework for Hermite fractional financial markets, generalizing the fractional Brownian motion and fractional Rosenblatt markets. Considering pure and mixed Hermite markets, we introduce a strategy-specific arbitrage tax on the rate of transaction volume acceleration of the hedging portfolio as the prices of risky assets change, allowing us to transform Hermite markets with arbitrage opportunities to markets with no arbitrage opportunities within the class of Markov trading strategies.

Date: 2017-09
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http://arxiv.org/pdf/1709.09068 Latest version (application/pdf)

Related works:
Working Paper: Pricing Derivatives in Hermite Markets (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1709.09068

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