Title: Hedging options in market models modulated by the fractional Brownian motion
Abstract: Abstract We use the stochastic calculus of variations for the fractional Brownian motion to derive formulas for the replicating portfolios for a class of contingent claims in a Bachelier and a Black–Scholes markets modulated by fractional Brownian motion. An example of such a model is the Black–Scholes process whose volatility solves a stochastic differential equation driven by a fractional Brownian motion that may depend on the underlying Brownian motion. Keywords: Fractional Brownian motionStochastic volatilityStochastic calculus of variationsHedging options Acknowledgments This work was done while the second named author was visiting the Department of Mathematics at The Royal Institute of Technology, S-100 44 Stockholm, Sweden. The Swedish Institute's research grant KD/ait 210 8066/1997 is gratefully acknowledged.
Publication Year: 2001
Publication Date: 2001-10-15
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 10
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