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arxiv: math/0408119 · v1 · submitted 2004-08-09 · 🧮 math.PR

Binary market models with memory

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keywords marketbinaryarbitragememorymodelapproximatesarbitrage-freebrownian
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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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