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Stochastic integration with respect to multifractional Brownian motion via tangent fractional Brownian motions

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  • Lebovits, Joachim
  • Lévy Véhel, Jacques
  • Herbin, Erick

Abstract

Stochastic integration w.r.t. fractional Brownian motion (fBm) has raised strong interest in recent years, motivated in particular by applications in finance and Internet traffic modelling. Since fBm is not a semi-martingale, stochastic integration requires specific developments. Multifractional Brownian motion (mBm) generalizes fBm by letting the local Hölder exponent vary in time. This is useful in various areas, including financial modelling and biomedicine. The aim of this work is twofold: first, we prove that an mBm may be approximated in law by a sequence of “tangent” fBms. Second, using this approximation, we show how to construct stochastic integrals w.r.t. mBm by “transporting” corresponding integrals w.r.t. fBm. We illustrate our method on examples such as the Wick–Itô, Skorohod and pathwise integrals.

Suggested Citation

  • Lebovits, Joachim & Lévy Véhel, Jacques & Herbin, Erick, 2014. "Stochastic integration with respect to multifractional Brownian motion via tangent fractional Brownian motions," Stochastic Processes and their Applications, Elsevier, vol. 124(1), pages 678-708.
    • Handle: RePEc:eee:spapps:v:124:y:2014:i:1:p:678-708
    DOI: 10.1016/j.spa.2013.09.004
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    References listed on IDEAS

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    1. Robert J. Elliott & John Van Der Hoek, 2003. "A General Fractional White Noise Theory And Applications To Finance," Mathematical Finance, Wiley Blackwell, vol. 13(2), pages 301-330, April.
    2. Bender, Christian, 2003. "An Itô formula for generalized functionals of a fractional Brownian motion with arbitrary Hurst parameter," Stochastic Processes and their Applications, Elsevier, vol. 104(1), pages 81-106, March.
    3. Stoev, Stilian A. & Taqqu, Murad S., 2006. "How rich is the class of multifractional Brownian motions?," Stochastic Processes and their Applications, Elsevier, vol. 116(2), pages 200-221, February.
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    Cited by:

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    2. Joachim Lebovits & Mark Podolskij, 2016. "Estimation of the global regularity of a multifractional Brownian motion," CREATES Research Papers 2016-33, Department of Economics and Business Economics, Aarhus University.
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    5. Loboda, Dennis & Mies, Fabian & Steland, Ansgar, 2021. "Regularity of multifractional moving average processes with random Hurst exponent," Stochastic Processes and their Applications, Elsevier, vol. 140(C), pages 21-48.

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