Model-independent superhedging under portfolio constraints

Arash Fahim () and Yu-Jui Huang ()

Finance and Stochastics, 2016, vol. 20, issue 1, 81 pages

Abstract: In a discrete-time market, we study model-independent superhedging where the semi-static superhedging portfolio consists of three parts: static positions in liquidly traded vanilla calls, static positions in other tradable, yet possibly less liquid, exotic options, and a dynamic trading strategy in risky assets under certain constraints. By considering the limit order book of each tradable exotic option and employing the Monge–Kantorovich theory of optimal transport we establish a general superhedging duality, which admits a natural connection to convex risk measures. With the aid of this duality, we derive a model-independent version of the fundamental theorem of asset pricing. The notion “finite optimal arbitrage profit”, weaker than no-arbitrage, is also introduced. It is worth noting that our method covers a large class of delta and gamma constraints. Copyright Springer-Verlag Berlin Heidelberg 2016

Keywords: Model-independent pricing; Robust superhedging; Limit order book; Fundamental theorem of asset pricing; Portfolio constraints; Monge–Kantorovich optimal transport; 91G20; 91G80; C61; G13 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
http://hdl.handle.net/10.1007/s00780-015-0284-9 (text/html)
Access to full text is restricted to subscribers.

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:spr:finsto:v:20:y:2016:i:1:p:51-81

Ordering information: This journal article can be ordered from
http://www.springer. ... ance/journal/780/PS2

DOI: 10.1007/s00780-015-0284-9

Access Statistics for this article

Finance and Stochastics is currently edited by M. Schweizer

More articles in Finance and Stochastics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().