The goal of this work is to study binary market models with transaction costs, and to characterize their arbitrage opportunities. It has been already shown that the absence of arbitrage is related to the existence of λ-consistent price systems (λ-CPS), and, for this reason, we aim to provide...

In the present paper we give some preliminary results for option pricing and hedging in the framework of the Bates model based on quadratic risk minimization. We provide an explicit expression of the mean-variance hedging strategy in the martingale case and study the Minimal Martingale measure...