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Binary market models with memory

Akihiko Inoue·Yumiharu Nakano·Vo Anh
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Abstract

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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Akihiko Inoue, Yumiharu Nakano, Vo Anh. 2004-08-09. Binary market models with memory. https://arxiv.org/abs/math/0408119

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