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Market Delay and G-expectations

Yan Dolinsky and Jonathan Zouari

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Abstract: We study super-replication of contingent claims in markets with delayed filtration. The first result in this paper reveals that in the Black--Scholes model with constant delay the super-replication price is prohibitively costly and leads to trivial buy-and-hold strategies. Our second result says that the scaling limit of super--replication prices for binomial models with a fixed number of times of delay $H$ is equal to the $G$--expectation with volatility uncertainty interval $[0,\sigma\sqrt{H+1}]$.

Date: 2017-09, Revised 2018-12
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