Robust Pricing and Hedging around the Globe
47 Pages Posted: 27 Jul 2017
Date Written: July 26, 2017
We consider the martingale optimal transport duality for càdlàg processes with given initial and terminal laws. Strong duality and existence of dual optimizers (robust semi-static superhedging strategies) are proved for a class of payoffs that includes American, Asian, Bermudan, and European options with intermediate maturity. We exhibit an optimal superhedging strategy for which the static part solves an auxiliary problem and the dynamic part is given explicitly in terms of the static part. In the case of finitely supported marginal laws, solving for the static part reduces to a semi-infinite linear program.
Keywords: Robust Superhedging, Semi-Static Strategies, Martingale Optimal Transport, Duality
JEL Classification: G12, G23, C61
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