Arbitrage and Super-Replication Cost with Convex Constraints

L. Carassus, Hieu Pham and N. Touzi

Papiers d'Economie Mathématique et Applications from Université Panthéon-Sorbonne (Paris 1)

Abstract: In frictionless securities markets, the characterization of the no arbitrage condition by the existence of equivalent martingale measures in discrete time is known as the fundamental Theorem of Asset Pricing. In the presence of convex constraints on the trading strategies, we extend this theorem under a closedness condition and a nondegeneracy assumption. Next, under some additional restrictions, we provide a dual representation of the super-replication cost of a nonnegative L contingent claim, i.e. the minimal initial wealth to hedge it by means of constrained trading strategies.

Keywords: FINANCIAL MARKET; PRICING; ARBITRAGE (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Pages: 24 pages
Date: 1997
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Working Paper: Arbitrage and Super-Replication Cost with Convex Constraints (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:pariem:97.81

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