Model-free trading and hedging with continuous price paths
Mathematical Finance
2018-10-09 v2 Probability
Pricing of Securities
Abstract
In this paper, we provide a model-independent extension of the paradigm of dynamic hedging of derivative claims. We relate model-independent replication strategies to local martingales having a closed form which we can characterise via solutions of coupled PDEs. We provide a general framework and then apply it to a market with no traded claims, a market with an underlying asset and a convex claim and a market with an underlying asset and a set of co-maturing call options. The results encompass known examples of model-independent identities and provide a methodology for deriving new identities.
Keywords
Cite
@article{arxiv.1809.00149,
title = {Model-free trading and hedging with continuous price paths},
author = {Tigran Atoyan},
journal= {arXiv preprint arXiv:1809.00149},
year = {2018}
}