On the Optimal Super- and Sub-Hedging Strategies

Yukihiro Tsuzuki
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Yukihiro Tsuzuki: Mizuho-DL Financial Technology Co., Ltd.

No CARF-F-300, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: This paper proposes optimal super-hedging and sub-hedging strategies for a derivative on two underlying assets without any specification of the underlying processes. Moreover, the strategies are free from any model of the dependency between the underlying asset prices. We derive the optimal pricing bounds by finding a joint distribution under which the derivative price is equal to the hedging portfolio's value; the portfolio consists of liquid derivatives on each of the underlying assets. As examples, we obtain new super-hedging and sub-hedging strategies for several exotic options such as quanto options, exchange options, basket options, forward starting options, and knock-out options.

Pages: 16 pages
Date: 2012-11, Revised 2013-08
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf300

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