Asymptotic arbitrage in the Heston model
Fatma Haba, Antoine Jacquier
TL;DR
This paper explores the relationship between equivalent martingale measures, ergodicity of the variance process, and asymptotic arbitrage in the Heston model, providing a theoretical framework for understanding arbitrage opportunities.
Contribution
It establishes a precise connection between measure sets, ergodicity, and asymptotic arbitrage in the Heston model, advancing theoretical understanding.
Findings
Link between martingale measures and ergodicity clarified
Conditions for asymptotic arbitrage identified
Theoretical insights into Heston model arbitrage opportunities
Abstract
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 the concept of asymptotic arbitrage proposed in Kabanov-Kramkov and in Follmer-Schachermayer.
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Taxonomy
TopicsStochastic processes and financial applications · Economic theories and models · Financial Risk and Volatility Modeling