Some Results on Skorokhod Embedding and Robust Hedging with Local Time

Julien Claisse, Gaoyue Guo and Pierre Henry-Labordere

Papers from arXiv.org

Abstract: In this paper, we provide some results on Skorokhod embedding with local time and its applications to the robust hedging problem in finance. First we investigate the robust hedging of options depending on the local time by using the recently introduced stochastic control approach, in order to identify the optimal hedging strategies, as well as the market models that realize the extremal no-arbitrage prices. As a by-product, the optimality of Vallois' Skorokhod embeddings is recovered. In addition, under appropriate conditions, we derive a new solution to the two-marginal Skorokhod embedding as a generalization of the Vallois solution. It turns out from our analysis that one needs to relax the monotonicity assumption on the embedding functions in order to embed a larger class of marginal distributions. Finally, in a full-marginal setting where the stopping times given by Vallois are well-ordered, we construct a remarkable Markov martingale which provides a new example of fake Brownian motion.

Date: 2015-11, Revised 2017-10
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/1511.07230 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1511.07230

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().