Pathwise super-replication via Vovk's outer measure

Mathias Beiglb\"ock, Alexander M. G. Cox, Martin Huesmann, Nicolas Perkowski and David J. Pr\"omel

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Abstract: Since Hobson's seminal paper [D. Hobson: Robust hedging of the lookback option. In: Finance Stoch. (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 super-replication 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.

Date: 2015-04, Revised 2016-07
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Citations: View citations in EconPapers (2)

Published in Finance Stoch., 21(4):1141-1166, 2017

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