A general framework for pricing and hedging under local viability

Huy N. Chau and Miklos Rasonyi

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Abstract: In this paper, a new approach for solving the problems of pricing and hedging derivatives is introduced in a general frictionless market setting. The method is applicable even in cases where an equivalent local martingale measure fails to exist. Our main results include a new superhedging duality for American options when wealth processes can be negative and trading strategies are subject to a cone constraint. This answers one of the questions raised by Fernholz, Karatzas and Kardaras.

Date: 2024-11
New Economics Papers: this item is included in nep-rmg
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