The robust superreplication problem: a dynamic approach

DOI10.1137/18M1235934MaRDI QIDQ5215985zbMATHOpenAlexFDO

Authors Jan Obłój, Johannes Wiesel, Laurence Carassus

Publication date 14 February 2020

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1812.11201

zbMATH Keywords

expected utilityrobust pricingsuperhedging

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Applications of statistics to actuarial sciences and financial mathematics (62P05) Probability measures on topological spaces (60B05) Financial markets (91G15)

Abstract: In the frictionless discrete time financial market of Bouchard et al.(2015) we consider a trader who, due to regulatory requirements or internal risk management reasons, is required to hedge a claim $xi$ in a risk-conservative way relative to a family of probability measures $mathcalP$. We first describe the evolution of $p{i}_t(xi)$ - the superhedging price at time $t$ of the liability $xi$ at maturity $T$ - via a dynamic programming principle and show that $p{i}_t(xi)$ can be seen as a concave envelope of $p{i}_{t+1}(xi)$ evaluated at today's prices. Then we consider an optimal investment problem for a trader who is rolling over her robust superhedge and phrase this as a robust maximisation problem, where the expected utility of inter-temporal consumption is optimised subject to a robust superhedging constraint. This utility maximisation is carrried out under a new family of measures $mathcal{P}^u$, which no longer have to capture regulatory or institutional risk views but rather represent trader's subjective views on market dynamics. Under suitable assumptions on the trader's utility functions, we show that optimal investment and consumption strategies exist and further specify when, and in what sense, these may be unique.

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Cited in

(22)

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