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Model-free trading and hedging with continuous price paths

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  • Tigran Atoyan

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.

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  • Tigran Atoyan, 2018. "Model-free trading and hedging with continuous price paths," Papers 1809.00149, arXiv.org, revised Oct 2018.
    • Handle: RePEc:arx:papers:1809.00149
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    References listed on IDEAS

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