Super†replication in fully incomplete markets

Yan Dolinsky and Ariel Neufeld

Mathematical Finance, 2018, vol. 28, issue 2, 483-515

Abstract: In this work, we introduce the notion of fully incomplete markets. We prove that for these markets, the super†replication price coincides with the model†free super†replication price. Namely, the knowledge of the model does not reduce the super†replication price. We provide two families of fully incomplete models: stochastic volatility models and rough volatility models. Moreover, we give several computational examples. Our approach is purely probabilistic.

Date: 2018
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