When are static superhedging strategies optimal?
This paper deals with the superhedging of derivatives and with the corresponding price bounds. A static superhedge results in trivial and fully nonparametric price bounds, which can be tightened if there exists a cheaper superhedge in the class of dynamic trading strategies. We focus on European path-independent claims and show under which conditions such an improvement is possible. For a stochastic volatility model with unbounded volatility, we show that a static superhedge is always optimal, and that, additionally, there may be infinitely many dynamic superhedges with the same initial capital. The trivial price bounds are thus the tightest ones. In a model with stochastic jumps or non-negative stochastic interest rates either a static or a dynamic superhedge is optimal. Finally, in a model with unbounded short rates, only a static superhedge is possible. JEL - Klassifikation: G13
| Author: | Nicole Branger, Angelika Esser, Christian Schlag |
|---|---|
| URN: | urn:nbn:de:hebis:30-17676 |
| Series (Serial Number) | Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (138) |
| Document Type: | Working Paper |
| Language: | English |
| Date of Publication (online): | 06.10.2005 |
| Year of first Publication: | 2004 |
| Publishing Institution: | Univ.-Bibliothek Frankfurt am Main |
| Tag: | Finanzderivat / Hedging / Strategie / Volatilität / Stochastischer Prozess / Theorie Incomplete markets ; stochastic interest rates; stochastic jumps ; stochastic volatility ; superhedging |
| Source: | Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting ; 138 |
| HeBIS PPN: | 18041173X |
| Institutes: | Wirtschaftswissenschaften |
| Dewey Decimal Classification: | 330 Wirtschaft |
| Sammlungen: | Universitätspublikationen |
| Licence (German): |  Veröffentlichungsvertrag für Publikationen ohne Print on Demand |
