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On the fractional Black-Scholes market with transaction costs


  • Ehsan Azmoodeh


We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance $n^{-1}$ between trading times. We derive a non trivial hedging error for a class of European options with convex payoff in the case when the transaction costs coefficients decrease as $n^{-(1-H)}$. We study the expected hedging error and asymptotic behavior of the hedge as $H \to 1/2$

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  • Ehsan Azmoodeh, 2010. "On the fractional Black-Scholes market with transaction costs," Papers 1005.0211,
  • Handle: RePEc:arx:papers:1005.0211

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    References listed on IDEAS

    1. Sottinen Tommi & Valkeila Esko, 2003. "On arbitrage and replication in the fractional Black–Scholes pricing model," Statistics & Risk Modeling, De Gruyter, vol. 21(2/2003), pages 93-108, February.
    2. Yuri M. Kabanov & (*), Mher M. Safarian, 1997. "On Leland's strategy of option pricing with transactions costs," Finance and Stochastics, Springer, vol. 1(3), pages 239-250.
    3. Paolo Guasoni & Miklós Rásonyi & Walter Schachermayer, 2010. "The fundamental theorem of asset pricing for continuous processes under small transaction costs," Annals of Finance, Springer, vol. 6(2), pages 157-191, March.
    4. Tomas Björk & Henrik Hult, 2005. "A note on Wick products and the fractional Black-Scholes model," Finance and Stochastics, Springer, vol. 9(2), pages 197-209, April.
    5. Christian Bender & Tommi Sottinen & Esko Valkeila, 2010. "Fractional processes as models in stochastic finance," Papers 1004.3106,
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