Pathwise superreplication via Vovk’s outer measure

Mathias Beiglböck (), Alexander M. G. Cox (), Martin Huesmann (), Nicolas Perkowski () and David J. Prömel ()
Additional contact information
Mathias Beiglböck: TU Wien
Alexander M. G. Cox: University of Bath
Martin Huesmann: Rheinische Friedrich-Wilhelms-Universität Bonn
Nicolas Perkowski: Humboldt-Universität zu Berlin
David J. Prömel: ETH Zürich

Finance and Stochastics, 2017, vol. 21, issue 4, No 8, 1166 pages

Abstract: Abstract Since Hobson’s seminal paper (Hobson in Finance Stoch. 2:329–347, 1998), the connection between model-independent pricing and the Skorokhod embedding problem has been a driving force in robust finance. We establish a general pricing–hedging duality for financial derivatives which are susceptible to the Skorokhod approach. Using Vovk’s approach to mathematical finance, we derive a model-independent superreplication theorem in continuous time, given information on finitely many marginals. Our result covers a broad range of exotic derivatives, including lookback options, discretely monitored Asian options, and options on realized variance.

Keywords: Model-independent pricing; Optimal transport; Skorokhod embedding; Superreplication theorem; Vovk’s outer measure; 60G44; 91G20; 91B24 (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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DOI: 10.1007/s00780-017-0338-2

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