Robust Pricing and Hedging around the Globe

47 Pages Posted: 27 Jul 2017

Date Written: July 26, 2017

Abstract

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

Suggested Citation

Herrmann, Sebastian and Stebegg, Florian, Robust Pricing and Hedging around the Globe (July 26, 2017). Available at SSRN: https://ssrn.com/abstract=3009507 or http://dx.doi.org/10.2139/ssrn.3009507

Sebastian Herrmann (Contact Author)

University of Manchester ( email )

Oxford Road
Manchester, N/A M13 9PL
United Kingdom

HOME PAGE: http://personalpages.manchester.ac.uk/staff/sebastian.herrmann

Florian Stebegg

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
23
Abstract Views
555
PlumX Metrics