- Journal Article
Rights / licenseIn Copyright - Non-Commercial Use Permitted
The duality between the robust (or equivalently, model independent) hedging of path dependent European options and a martingale optimal transport problem is proved. The financial market is modeled through a risky asset whose price is only assumed to be a continuous function of time. The hedging problem is to construct a minimal super-hedging portfolio that consists of dynamically trading the underlying risky asset and a static position of vanilla options which can be exercised at the given, fixed maturity. The dual is a Monge–Kantorovich type martingale transport problem of maximizing the expected value of the option over all martingale measures that have a given marginal at maturity. In addition to duality, a family of simple, piecewise constant super-replication portfolios that asymptotically achieve the minimal super-replication cost is constructed. Show more
Journal / seriesProbability Theory and Related Fields
Pages / Article No.
SubjectEuropean options; Robust hedging; Min–max theorems; Prokhorov metric; Optimal transport
Organisational unit03844 - Soner, Mete (emeritus) / Soner, Mete (emeritus)
NotesIt was possible to publish this article open access thanks to a Swiss National Licence with the publisher.
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