Semi-static completeness and robust pricing by informed investors

Beatrice Acciaio and Martin Larsson

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We consider a continuous-time financial market that consists of securities available for dynamic trading, and securities only available for static trading. We work in a robust framework where a set of nondominated models is given. The concept of semi-static completeness is introduced: it corresponds to having exact replication by means of semi-static strategies. We show that semi-static completeness is equivalent to an extremality property, and give a characterization of the induced filtration structure. Furthermore, we consider investors with additional information and, for specific types of extra information, we characterize the models that are semi-statically complete for the informed investors. Finally, we provide some examples where robust pricing for informed and uninformed agents can be done over semi-statically complete models.

JEL-codes: C1 F3 G3 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (5)

Published in Annals of Applied Probability, 2017, 27(4), pp. 2270-2304. ISSN: 1050-5164

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