IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1508.05233.html
   My bibliography  Save this paper

Super-replication in Fully Incomplete Markets

Author

Listed:
  • Yan Dolinsky
  • Ariel Neufeld

Abstract

In this work we introduce the notion of fully incomplete markets. We prove that for these markets the super-replication price coincide with the model free super-replication price. Namely, the knowledge of the model does not reduce the super-replication price. We provide two families of fully incomplete models: stochastic volatility models and rough volatility models. Moreover, we give several computational examples. Our approach is purely probabilistic.

Suggested Citation

  • Yan Dolinsky & Ariel Neufeld, 2015. "Super-replication in Fully Incomplete Markets," Papers 1508.05233, arXiv.org, revised Sep 2016.
    • Handle: RePEc:arx:papers:1508.05233
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1508.05233
    File Function: Latest version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Erik Ekstrom & Stephane Villeneuve, 2006. "On the value of optimal stopping games," Papers math/0610324, arXiv.org.
    2. Yuri Kifer, 2000. "Game options," Finance and Stochastics, Springer, vol. 4(4), pages 443-463.
    3. Scott, Louis O., 1987. "Option Pricing when the Variance Changes Randomly: Theory, Estimation, and an Application," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 22(4), pages 419-438, December.
    4. Andreas Kyprianou, 2004. "Some calculations for Israeli options," Finance and Stochastics, Springer, vol. 8(1), pages 73-86, January.
    5. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    6. Stéphane Villeneuve & Erik Ekstrom, 2006. "On the Value of Optimal Stopping Games," Post-Print hal-00173182, HAL.
    7. Hull, John C & White, Alan D, 1987. "The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Anna Aksamit & Ivan Guo & Shidan Liu & Zhou Zhou, 2021. "Superhedging duality for multi-action options under model uncertainty with information delay," Papers 2111.14502, arXiv.org, revised Nov 2023.
    2. Daniel Bartl & Michael Kupper & Ariel Neufeld, 2017. "Pathwise superhedging on prediction sets," Papers 1711.02764, arXiv.org, revised Oct 2019.
    3. Ariel Neufeld, 2017. "Buy-and-Hold Property for Fully Incomplete Markets when Super-replicating Markovian Claims," Papers 1707.01178, arXiv.org, revised Oct 2018.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Boyarchenko, Svetlana & Levendorskiĭ, Sergei, 2014. "Preemption games under Lévy uncertainty," Games and Economic Behavior, Elsevier, vol. 88(C), pages 354-380.
    2. De Angelis, Tiziano & Gensbittel, Fabien & Villeneuve, Stéphane, 2017. "A Dynkin game on assets with incomplete information on the return," TSE Working Papers 17-815, Toulouse School of Economics (TSE).
    3. Yuri Kifer, 2012. "Dynkin Games and Israeli Options," Papers 1209.1791, arXiv.org.
    4. Aït-Sahalia, Yacine & Li, Chenxu & Li, Chen Xu, 2021. "Closed-form implied volatility surfaces for stochastic volatility models with jumps," Journal of Econometrics, Elsevier, vol. 222(1), pages 364-392.
    5. Christoffersen, Peter & Jacobs, Kris & Chang, Bo Young, 2013. "Forecasting with Option-Implied Information," Handbook of Economic Forecasting, in: G. Elliott & C. Granger & A. Timmermann (ed.), Handbook of Economic Forecasting, edition 1, volume 2, chapter 0, pages 581-656, Elsevier.
    6. Peter Christoffersen & Ruslan Goyenko & Kris Jacobs & Mehdi Karoui, 2018. "Illiquidity Premia in the Equity Options Market," The Review of Financial Studies, Society for Financial Studies, vol. 31(3), pages 811-851.
    7. Henri Bertholon & Alain Monfort & Fulvio Pegoraro, 2006. "Pricing and Inference with Mixtures of Conditionally Normal Processes," Working Papers 2006-28, Center for Research in Economics and Statistics.
    8. Tiziano De Angelis & Nikita Merkulov & Jan Palczewski, 2020. "On the value of non-Markovian Dynkin games with partial and asymmetric information," Papers 2007.10643, arXiv.org, revised Feb 2021.
    9. Chiang, Min-Hsien & Huang, Hsin-Yi, 2011. "Stock market momentum, business conditions, and GARCH option pricing models," Journal of Empirical Finance, Elsevier, vol. 18(3), pages 488-505, June.
    10. Ghysels, E. & Harvey, A. & Renault, E., 1995. "Stochastic Volatility," Papers 95.400, Toulouse - GREMAQ.
    11. Vicky Henderson & David Hobson, 2001. "Passport options with stochastic volatility," Applied Mathematical Finance, Taylor & Francis Journals, vol. 8(2), pages 97-118.
    12. Lars Stentoft, 2008. "Option Pricing using Realized Volatility," CREATES Research Papers 2008-13, Department of Economics and Business Economics, Aarhus University.
    13. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.
    14. Bara Kim & In-Suk Wee, 2014. "Pricing of geometric Asian options under Heston's stochastic volatility model," Quantitative Finance, Taylor & Francis Journals, vol. 14(10), pages 1795-1809, October.
    15. Kozarski, R., 2013. "Pricing and hedging in the VIX derivative market," Other publications TiSEM 221fefe0-241e-4914-b6bd-c, Tilburg University, School of Economics and Management.
    16. Christoffersen, Peter & Heston, Steve & Jacobs, Kris, 2006. "Option valuation with conditional skewness," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 253-284.
    17. Kolkiewicz, A. W. & Tan, K. S., 2006. "Unit-Linked Life Insurance Contracts with Lapse Rates Dependent on Economic Factors," Annals of Actuarial Science, Cambridge University Press, vol. 1(1), pages 49-78, March.
    18. Charles J. Corrado & Tie Su, 1996. "Skewness And Kurtosis In S&P 500 Index Returns Implied By Option Prices," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 19(2), pages 175-192, June.
    19. Ariel Neufeld, 2017. "Buy-and-Hold Property for Fully Incomplete Markets when Super-replicating Markovian Claims," Papers 1707.01178, arXiv.org, revised Oct 2018.
    20. Samuel Chege Maina, 2011. "Credit Risk Modelling in Markovian HJM Term Structure Class of Models with Stochastic Volatility," PhD Thesis, Finance Discipline Group, UTS Business School, University of Technology, Sydney, number 1-2011.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1508.05233. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: arXiv administrators (email available below). General contact details of provider: http://arxiv.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.