Change of numeraire in the two-marginals martingale transport problem

Luciano Campi, Ismail Laachir and Claude Martini

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In this paper, we apply change of numeraire techniques to the optimal transport approach for computing model-free prices of derivatives in a two-period setting. In particular, we consider the optimal transport plan constructed in Hobson and Klimmek (Finance Stoch. 19:189–214, 2015) as well as the one introduced in Beiglböck and Juillet (Ann. Probab. 44:42–106, 2016) and further studied in Henry-Labordère and Touzi (Finance Stoch. 20:635–668, 2016). We show that in the case of positive martingales, a suitable change of numeraire applied to Hobson and Klimmek (Finance Stoch. 19:189–214, 2015) exchanges forward start straddles of type I and type II, so that the optimal transport plan in the subhedging problems is the same for both types of options. Moreover, for Henry-Labordère and Touzi’s (Finance Stoch. 20:635–668, 2016) construction, the right-monotone transference plan can be viewed as a mirror coupling of its left counterpart under the change of numeraire.

Keywords: robust hedging; mode-independent pricing; model uncertainty; optimal transport; change of numeraire; forward start straddle (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2017-04-01
New Economics Papers: this item is included in nep-tre
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Citations: View citations in EconPapers (13)

Published in Finance and Stochastics, 1, April, 2017, 21(2), pp. 471-486. ISSN: 0949-2984

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