English, Article, Journal or magazine article edition: When Are Static Superhedging Strategies Optimal? Nicole Branger; Angelika Esser; Christian Schlag

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Bookmark: http://trove.nla.gov.au/version/1592
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • When Are Static Superhedging Strategies Optimal?
Author
  • Nicole Branger
  • Angelika Esser
  • Christian Schlag
Physical Description
  • preprint
Notes
  • This paper deals with the superhedging of derivatives and with the corresponding price bounds. A static superhedge results in trivial and fully nonparametric price bounds, which can be tightened if there exists a cheaper superhedge in the class of dynamic trading strategies. We focus on European path-independent claims and show under which conditions such an improvement is possible. For a stochastic volatility model with unbounded volatility, we show that a static superhedge is always optimal, and that, additionally, there may be infinitely many dynamic superhedges with the same initial capital. The trivial price bounds are thus the tightest ones. In a model with stochastic jumps or non-negative stochastic interest rates either a static or a dynamic superhedge is optimal. Finally, in a model with unbounded short rates, only a static superhedge is possible.
  • Incomplete markets, superhedging, stochastic volatility, stochastic jumps, stochastic interest rates
  • RePEc:fra:franaf:138
Language
  • English
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