BUY-AND-HOLD PROPERTY FOR FULLY INCOMPLETE MARKETS WHEN SUPER-REPLICATING MARKOVIAN CLAIMS

Ariel Neufeld
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Ariel Neufeld: RiskLab, Department of Mathematics, ETH Zurich, Rämistrasse 101, 8092 Zürich, Switzerland

International Journal of Theoretical and Applied Finance (IJTAF), 2018, vol. 21, issue 08, 1-12

Abstract: We show that when the price process S represents a fully incomplete market, the optimal super-replication of any Markovian claim g(ST) with g(⋅) being nonnegative and lower semicontinuous is of buy-and-hold type. Since both (unbounded) stochastic volatility models and rough volatility models are examples of fully incomplete markets, one can interpret the buy-and-hold property when super-replicating Markovian claims as a natural phenomenon in incomplete markets.

Keywords: Super-replication; fully incomplete markets; robust pricing; stochastic volatility; rough volatility (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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DOI: 10.1142/S0219024918500516

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