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On discrete time hedging errors in a fractional Black-Scholes model

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Abstract

In this paper we investigate asymptotic behavior of error of a discrete time hedging strategy in a fractional Black-Scholes model in the sense of Wick-Itô-Skorohod integration. The rate of convergence of the hedging error due to discrete-time trading when the true strategy is known for the trader, is investigated. The result provides new statistical tools to study and detect the effect of the long-memory and the Hurst parameter for the error of discrete time hedging.

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Acknowledgement

The author wishes to express his deep gratitude to thr referee for his/her valuable comments on an earlier version, which improve the quality of this paper.

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Authors and Affiliations

  1. College of Economics, Hangzhou Dianzi University, Hangzhou, 310018, China

    Wen-sheng Wang

  2. College of Science, Hangzhou Normal University, Hangzhou, 310036, China

    Wen-sheng Wang

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  1. Wen-sheng Wang
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Correspondence to Wen-sheng Wang.

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Supported by the National Natural Science Foundation of China (11671115) and the Natural Science Foundation of Zhejiang Province (LY14A010025).

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Wang, Ws. On discrete time hedging errors in a fractional Black-Scholes model. Appl. Math. J. Chin. Univ. 32, 211–224 (2017). https://doi.org/10.1007/s11766-017-3160-x

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  • DOI: https://doi.org/10.1007/s11766-017-3160-x

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