A general framework for pricing and hedging under local viability
Pricing of Securities
2026-03-18 v2
Abstract
In this paper, a new approach for solving the problems of pricing and hedging derivatives is introduced in a general frictionless market setting. The method is applicable even in cases where an equivalent local martingale measure fails to exist. Our main results include a new superhedging duality for American options when wealth processes can be negative and trading strategies are subject to a cone constraint. This answers one of the questions raised by Fernholz, Karatzas and Kardaras.
Keywords
Cite
@article{arxiv.2411.19206,
title = {A general framework for pricing and hedging under local viability},
author = {Huy N. Chau and Miklos Rasonyi},
journal= {arXiv preprint arXiv:2411.19206},
year = {2026}
}
Comments
We thank the referees for pointing out a mistake regarding the definition of the superhedging price in the previous version of the paper. Furthermore, the infinite horizon setting is used