Hedging of game options under model uncertainty in discrete time

DOI10.1214/ECP.V19-2714MaRDI QIDQ743096zbMATH OpenFDO

Authors Yan Dolinsky

Publication date 22 September 2014

Published in Electronic Communications in Probability (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1304.3574

zbMATH Keywords

Dynkin gamesgame optionsmodel uncertaintysuper-replication

Mathematics Subject Classification ID

Martingales with discrete parameter (60G42) Stochastic games, stochastic differential games (91A15) Derivative securities (option pricing, hedging, etc.) (91G20) Credit risk (91G40) Financial applications of other theories (91G80)

Abstract: We introduce a setup of model uncertainty in discrete time. In this setup we derive dual expressions for the super--replication prices of game options with upper semicontinuous payoffs. We show that the super--replication price is equal to the supremum over a special (non dominated) set of martingale measures, of the corresponding Dynkin games values. This type of results is also new for American options.

Review text

The author derives a superreplication price for discrete-time game options under model uncertainty. As usual, the financial market consists here of a (non-risky) savings account and a risky asset (stock) whose price evolution is described by a sequence \(S_0,S_1,\dots,S_N\) but no a priori market probability is chosen and it is assumed only that \(0\leq a\leq |\ln S_{i+1} -\ln S_i|\leq b\). The author shows that the super-replication price is given by the supremum of Dynkin games values over a class of martingale measures with respect to the filtration generated by the coordinate process in \(\mathbb R^N\).

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Cited in

(22)

• Defaultable game options in a hazard process model
• Numerical scheme for Dynkin games under model uncertainty
• Quantile hedging in a semi-static market with model uncertainty
• Applications of weak convergence for hedging of game options
• Robust discrete-time super-hedging strategies under AIP condition and under price uncertainty
• Game-theoretic derivation of upper hedging prices of multivariate contingent claims and submodularity
• Arbitrage and duality in nondominated discrete-time models
• Perfect and partial hedging for swing game options in discrete time
• Super-replication with nonlinear transaction costs and volatility uncertainty
• Hedging with risk for game options in discrete time
• Hedging of game options with the presence of transaction costs
• Game options in an imperfect market with default
• On hedging American options under model uncertainty
• Super-hedging American options with semi-static trading strategies under model uncertainty
• Hedging of game options in discrete markets with transaction costs
• Game-Theoretic Derivation of Discrete Distributions and Discrete Pricing Formulas
• The Wasserstein space of stochastic processes
• Approximations and asymptotics of upper hedging prices in multinomial models
• Denseness of biadapted Monge mappings
• A probabilistic view on the adapted Wasserstein distance
• Robust superhedging with jumps and diffusion
• Binomial approximations of shortfall risk for game options

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