2024/11/28 by Huy N. Chau, Chau, Huy N., Miklós Rásonyi +1
Economics, Econometrics and Finance · #Economic theories and models
paper · pdf · doi:10.48550/arxiv.2411.19206
In this paper, a new approach for solving the problems of pricing and hedging derivatives is introduced in a general frictionless market setting. The method is applicable even in cases where an equivalent local martingale measure fails to exist. Our main results include a new superhedging duality for American options when wealth processes can be negative and trading strategies are subject to a cone constraint. This answers one of the questions raised by Fernholz, Karatzas and Kardaras.