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Conditional-Mean Hedging Under Transaction Costs In Gaussian Models

Author

Listed:
  • TOMMI SOTTINEN

    (Department of Mathematics and Statistics, University of Vaasa, Vaasa, P. O. Box 700, FIN-65101 Vaasa, Finland)

  • LAURI VIITASAARI

    (Department of Mathematics and System Analysis, Aalto University School of Science, Helsinki, P. O. Box 11100, FIN-00076 Aalto, Finland)

Abstract

We consider so-called regular invertible Gaussian Volterra processes and derive a formula for their prediction laws. Examples of such processes include the fractional Brownian motions and the mixed fractional Brownian motions. As an application, we consider conditional-mean hedging under transaction costs in Black–Scholes type pricing models where the Brownian motion is replaced with a more general regular invertible Gaussian Volterra process.

Suggested Citation

  • Tommi Sottinen & Lauri Viitasaari, 2018. "Conditional-Mean Hedging Under Transaction Costs In Gaussian Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(02), pages 1-15, March.
    • Handle: RePEc:wsi:ijtafx:v:21:y:2018:i:02:n:s0219024918500152
    DOI: 10.1142/S0219024918500152
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    References listed on IDEAS

    as
    1. Leland, Hayne E, 1985. "Option Pricing and Replication with Transactions Costs," Journal of Finance, American Finance Association, vol. 40(5), pages 1283-1301, December.
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    7. repec:dau:papers:123456789/4654 is not listed on IDEAS
    8. Gapeev Pavel V. & Sottinen Tommi & Valkeila Esko, 2011. "Robust replication in H-self-similar Gaussian market models under uncertainty," Statistics & Risk Modeling, De Gruyter, vol. 28(1), pages 37-50, March.
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    Full references (including those not matched with items on IDEAS)

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