Asymptotic arbitrage in the Heston model

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Title: Asymptotic arbitrage in the Heston model
Author(s): Jacquier, A
Haba, FH
Item Type: Journal Article
Abstract: In this paper, we introduce a new form of asymptotic arbitrage, which we call a partial asymptotic arbitrage, half-way between those of F ollmer & Schachermayer (2007) and Kabanov & Kramkov (1998). In the context of the Heston model, we establish a precise link between the set of equivalent martingale measures, the ergodicity of the underlying variance process and this partial asymptotic arbitrage. In contrast to F ollmer & Schachermayer (2007), our result does not assume a suitable condition on the stock price process to allow for (partial) asymptotic arbitrage.
Publication Date: 30-Nov-2015
Date of Acceptance: 31-Aug-2015
URI: http://hdl.handle.net/10044/1/27701
DOI: https://dx.doi.org/10.1142/S0219024915500557
ISSN: 0219-0249
Publisher: World Scientific Publishing
Journal / Book Title: International Journal of Theoretical and Applied Finance
Volume: 18
Copyright Statement: © The Author(s). This is an Open Access article published by World Scientific Publishing Company. It is distributed under the terms of the Creative Commons Attribution 4.0 (CC-BY) License. Further distribution of this work is permitted, provided the original work is properly cited.
Sponsor/Funder: Engineering & Physical Science Research Council (EPSRC)
Funder's Grant Number: EP/M008436/1
Keywords: Stochastic volatility model
Heston model
asymptotic arbitrage
large deviations
Finance
15 Commerce, Management, Tourism And Services
01 Mathematical Sciences
Publication Status: Published
Article Number: 1550055
Appears in Collections:Financial Mathematics
Mathematics
Faculty of Natural Sciences



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