In this paper we analyse the robustness of the Hobson-Rogers model with respect to the offset function, which depends on the whole past of the risky asset and is thus not fully observable. We prove that, if the offset function is the realisation of a stationary process, then the error in pricing a derivative asset decreases exponentially with respect to the observation window. We present sufficient conditions on the volatility in order to characterise the invariant density and three examples.
Robustness of the Hobson-Rogers model with respect to the offset function
VARGIOLU, TIZIANO
2008
Abstract
In this paper we analyse the robustness of the Hobson-Rogers model with respect to the offset function, which depends on the whole past of the risky asset and is thus not fully observable. We prove that, if the offset function is the realisation of a stationary process, then the error in pricing a derivative asset decreases exponentially with respect to the observation window. We present sufficient conditions on the volatility in order to characterise the invariant density and three examples.
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