The space of outcomes of semi-static trading strategies need not be closed

DOI10.1007/S00780-017-0329-3MaRDI QIDQ2364534zbMATH OpenOpenAlexFDO

Authors Martin Larsson, B. Acciaio, Walter Schachermayer

Publication date 21 July 2017

Published in Finance and Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1606.00631, http://eprints.lse.ac.uk/69804/1/Acciaio_Space%20of%20outcomes_2017.pdf

zbMATH Keywords

semi-static trading strategiessemi-static completenesssemi-static replication

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Martingales with continuous parameter (60G44) Actuarial science and mathematical finance (91G99)

Abstract: Semi-static trading strategies make frequent appearances in mathematical finance, where dynamic trading in a liquid asset is combined with static buy-and-hold positions in options on that asset. We show that the space of outcomes of such strategies can have very poor closure properties when all European options for a fixed date $T$ are available for static trading. This causes problems for optimal investment, and stands in sharp contrast to the purely dynamic case classically considered in mathematical finance.

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Cited in

(5)

• On intermediate marginals in martingale optimal transportation
• A pointwise bipolar theorem
• On the support of extremal martingale measures with given marginals: the countable case
• Limits of semistatic trading strategies
• Martingale Schrödinger bridges and optimal semistatic portfolios

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