Binary market models with memory

Details Binary market models with memory Binary market models with memory

2004-08-09

arxiv.org/abs/math/0408119v1

Mathematics

Probability

13 pages

Scientific paper

We construct a binary market model with memory that approximates a continuous-time market model driven by a Gaussian process equivalent to Brownian motion. We give a sufficient conditions for the binary market to be arbitrage-free. In a case when arbitrage opportunities exist, we present the rate at which the arbitrage probability tends to zero as the number of periods goes to infinity.

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