The space of outcomes of semi-static trading strategies need not be closed

Beatrice Acciaio, Martin Larsson and Walter Schachermayer

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

Abstract: Semi-static trading strategies make frequent appearances in mathematical finance, where dynamic trading in a liquid asset is combined with static buy-and-hold positions in options on that asset. We show that the space of outcomes of such strategies can have very poor closure properties when all European options for a fixed date T are available for static trading. This causes problems for optimal investment, and stands in sharp contrast to the purely dynamic case classically considered in mathematical finance.

Keywords: semi-static trading strategies; semi-static completeness; semi-static replication (search for similar items in EconPapers)
JEL-codes: F3 G3 (search for similar items in EconPapers)
Date: 2017-07-01
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (6)

Published in Finance and Stochastics, 1, July, 2017, 21(3), pp. 741-751. ISSN: 0949-2984

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:69804

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