Fractional term structure models: No-arbitrage and consistency

  title={Fractional term structure models: No-arbitrage and consistency},
  author={Alberto Ohashi},
  journal={arXiv: Pricing of Securities},
  • A. Ohashi
  • Published 9 February 2008
  • Mathematics
  • arXiv: Pricing of Securities
In this work we introduce Heath-Jarrow-Morton (HJM) interest rate models driven by fractional Brownian motions. By using support arguments we prove that the resulting model is arbitrage free under proportional transaction costs in the same spirit of Guasoni [Math. Finance 16 (2006) 569-582]. In particular, we obtain a drift condition which is similar in nature to the classical HJM no-arbitrage drift restriction. The second part of this paper deals with consistency problems related to the… 
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