Generalized integrands and bond portfolios: pitfalls and counter examples (Q627245)

The paper deals with the notion of \textit{generalized self-financed bond portfolio}, introduced in [\textit{M. De Donno} and \textit{M. Pratelli} [Ann. Appl. Probab. 15, No. 4, 2773--2791 (2005; Zbl 1121.60056)], which extends the notion of admissible portfolio and establishes, for very general price processes having a unique martingale measure, the completeness of the market. In particular, the author is interested in the price of the risky part of generalized bond portfolios, for which the separation into risk-free and risky parts makes sense. He considers simple price models driven by a standard cylindrical Brownian motion with a constant volatility operator. It is shown that that some generalized self-financed bond portfolios have properties which can limit the mathematical and practical usefulness of generalized portfolios. In particular, it is shown that there exist bounded smooth random variables hedgeable in the generalized sense by a unique generalized self-financed bond portfolio \(g\), whose risky part has infinite price (equivalently, it requires to hold a loan of infinite amount) at each time. Moreover, approximate (classical) portfolios converging to \(g\) can be chosen such that their risky part converges to any number in \([-\infty,\infty]\).