Buy-and-Hold Property for Fully Incomplete Markets when Super-replicating Markovian Claims

Ariel Neufeld

Papers from arXiv.org

Abstract: We show that when the price process $S$ represents a fully incomplete market, the optimal super-replication of any Markovian claim $g(S_T)$ with $g(\cdot)$ 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.

Date: 2017-07, Revised 2018-10
New Economics Papers: this item is included in nep-mic
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