Dept. Math, Hokkaido Univ. EPrints Server

Binary market models with memory

Preprint Series # 661
Inoue, Akihiko and Nakano, Yumiharu and Anh, Vo Binary market models with memory. (2004);

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Abstract

We construct a binary market model with memory that approximates a continuous-time market model driven by a Gaussian process equivalent to Brownian motion. We give a sufficient conditions for the binary market to be arbitrage-free. In a case when arbitrage opportunities exist, we present the rate at which the arbitrage probability tends to zero as the number of periods goes to infinity.

Item Type:Preprint
Uncontrolled Keywords:Financial market with memory, binary market, arbitrage
Subjects:91-xx GAME THEORY, ECONOMICS, SOCIAL AND BEHAVIORAL SCIENCES
ID Code:414