Generalized Duality for Model-Free Superhedging given Marginals

arXiv1909.06036MaRDI QIDQ6325220FDOQ6325220

Saeed Khalili, Arash Fahim, Yu-Jui Huang

Publication date: 13 September 2019

Abstract: In a discrete-time financial market, a generalized duality is established for model-free superhedging, given marginal distributions of the underlying asset. Contrary to prior studies, we do not require contingent claims to be upper semicontinuous, allowing for upper semi-analytic ones. The generalized duality stipulates an extended version of risk-neutral pricing. To compute the model-free superhedging price, one needs to find the supremum of expected values of a contingent claim, evaluated not directly under martingale (risk-neutral) measures, but along sequences of measures that converge, in an appropriate sense, to martingale ones. To derive the main result, we first establish a portfolio-constrained duality for upper semi-analytic contingent claims, relying on Choquet's capacitability theorem. As we gradually fade out the portfolio constraint, the generalized duality emerges through delicate probabilistic estimations.

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Martingales with discrete parameter (60G42) Financial applications of other theories (91G80)

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