Abstract
In this paper we extend discrete time semistatic trading strategies by also allowing for dynamic trading in a finite amount of options, and we study the consequences for the model-independent superreplication prices of exotic derivatives. These include duality results as well as a precise characterization of pricing rules for the dynamically tradable options triggering an improvement of the price bounds for exotic derivatives in comparison with the conventional price bounds obtained through the martingale optimal transport approach.
| Original language | English |
|---|---|
| Pages (from-to) | 1307-1339 |
| Number of pages | 33 |
| Journal | SIAM Journal on Financial Mathematics |
| Volume | 12 |
| Issue number | 4 |
| DOIs | |
| Publication status | Published - 2021 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2021 Society for Industrial and Applied Mathematics.
ASJC Scopus Subject Areas
- Numerical Analysis
- Finance
- Applied Mathematics
Keywords
- European options
- martingale optimal transport
- price bounds
- sensitivity