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
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.
show moreshow less

Download full text files

Export metadata

  • Export Bibtex
  • Export RIS

Additional Services

    Share in Twitter Search Google Scholar
Metadaten
Author:Nicole Branger, Angelika Esser, Christian Schlag
URN:urn:nbn:de:hebis:30-17676
Parent Title (English):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 138
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (138)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2004
Year of first Publication:2004
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2005/10/06
Tag:Finanzderivat / Hedging / Strategie / Volatilität / Stochastischer Prozess / Theorie
Incomplete markets; stochastic interest rates; stochastic jumps; stochastic volatility; superhedging
SWD-Keyword:Derivat, Wertpapier; Hedging
Issue:Version: January 16, 2004
HeBIS PPN:18041173X
Institutes:Wirtschaftswissenschaften
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:G13 Contingent Pricing; Futures Pricing
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

$Rev: 11761 $