Year: 2016
Type: preprint
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.
Author: Atoyan, Tigran
Institution: University of Oxford
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2747574575