Advanced Search
MyIDEAS: Login

When Are Static Superhedging Strategies Optimal?

Contents:

Author Info

  • Nicole Branger

    ()

  • Angelika Esser

    ()

  • Christian Schlag

    ()

Registered author(s):

    Abstract

    This paper deals with the superhedging of derivatives and with the corresponding price bounds. A static superhedge results in trivial and fully nonparametric price bounds, which can be tightened if there exists a cheaper superhedge in the class of dynamic trading strategies. We focus on European path-independent claims and show under which conditions such an improvement is possible. For a stochastic volatility model with unbounded volatility, we show that a static superhedge is always optimal, and that, additionally, there may be infinitely many dynamic superhedges with the same initial capital. The trivial price bounds are thus the tightest ones. In a model with stochastic jumps or non-negative stochastic interest rates either a static or a dynamic superhedge is optimal. Finally, in a model with unbounded short rates, only a static superhedge is possible.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.finance.uni-frankfurt.de/wp/404.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Department of Finance, Goethe University Frankfurt am Main in its series Working Paper Series: Finance and Accounting with number 138.

    as in new window
    Length:
    Date of creation: Oct 2004
    Date of revision:
    Handle: RePEc:fra:franaf:138

    Contact details of provider:
    Postal: Senckenberganlage 31, 60054 Frankfurt
    Phone: 0049-69-798-28269
    Fax: 0049-69-798-28272
    Web page: http://www.finance.uni-frankfurt.de
    More information through EDIRC

    Related research

    Keywords: Incomplete markets; superhedging; stochastic volatility; stochastic jumps; stochastic interest rates;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fra:franaf:138. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reinhard H. Schmidt).

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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