Attainability of European Path Independent Claims in Incomplete Markets

Branger Nicole, Esser Angelika, Schlag Christian


Zusammenfassung
In this paper we consider the question which path-independent claims are attainable through self-financing trading strategies in an incomplete market. For continuous-time stochastic volatility models we show that only affine payoffs can be replicated. We provide a simple proof for this proposition based on the requirement that, for replication, the stock and the claim must be locally perfectly correlated, and based on the partial differential equation that any path-independent claim has to satisfy. Moreover, we show that this result does not carry over to discrete setups.

Schlüsselwörter
Incomplete markets; Attainability; Stochastic volatility; Superhedging



Publikationstyp
Forschungsartikel (Zeitschrift)

Begutachtet
Ja

Publikationsstatus
Veröffentlicht

Jahr
2004

Fachzeitschrift
Finance Research Letters

Band
1

Ausgabe
3

Erste Seite
190

Letzte Seite
195

Sprache
Englisch

ISSN
1544-6123

DOI

Gesamter Text