Finance and Stochastics

, Volume 7, Issue 4, pp 533–553

Arbitrage in fractional Brownian motion models

Authors

  • Patrick Cheridito
    • Departement für Mathematik, Eidgenössische Technische Hochschule Zürich, 8092 Zürich, Switzerland (e-mail: dito@math.ethz.ch)
Original Paper

DOI: 10.1007/s007800300101

Cite this article as:
Cheridito, P. Finance Stochast (2003) 7: 533. doi:10.1007/s007800300101

Abstract.

We construct arbitrage strategies for a financial market that consists of a money market account and a stock whose discounted price follows a fractional Brownian motion with drift or an exponential fractional Brownian motion with drift. Then we show how arbitrage can be excluded from these models by restricting the class of trading strategies.

Key words: Fractional Brownian motion, arbitrage, strong arbitrage, exclusion of arbitrage

Copyright information

© Springer-Verlag Berlin Heidelberg 2003