Martingale optimal transport and robust hedging in continuous time
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Publication:466902
DOI10.1007/S00440-013-0531-YzbMATH Open1305.91215arXiv1208.4922OpenAlexW3125330115WikidataQ57635867 ScholiaQ57635867MaRDI QIDQ466902FDOQ466902
Publication date: 31 October 2014
Published in: Zeitschrift für Wahrscheinlichkeitstheorie und Verwandte Gebiete (Search for Journal in Brave)
Abstract: The duality between the robust (or equivalently, model independent) hedging of path dependent European options and a martingale optimal transport problem is proved. The financial market is modeled through a risky asset whose price is only assumed to be a continuous function of time. The hedging problem is to construct a minimal super-hedging portfolio that consists of dynamically trading the underlying risky asset and a static position of vanilla options which can be exercised at the given, fixed maturity. The dual is a Monge-Kantorovich type martingale transport problem of maximizing the expected value of the option over all martingale measures that has the given marginal at maturity. In addition to duality, a family of simple, piecewise constant super-replication portfolios that asymptotically achieve the minimal super-replication cost is constructed.
Full work available at URL: https://arxiv.org/abs/1208.4922
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