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Dry Markets and Superreplication Bounds of American Derivatives
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Orientador(es)
Resumo(s)
This paper studies the impact of dry markets for underlying assets on the pricing of American derivatives, using a discrete time framework. Dry markets are characterized by the possibility of non-existence of trading at certain dates. Such non-existence may be deterministic or probabilistic. Using superreplicating strategies, we derive expectation representations for the range of arbitrage-free values of the dervatives. In the probabilistic case, if we consider an enlarged filtration induced by the price process and the market existence process, ordinary stopping times are required. If not, randomized stopping times are required. Several comparisons of the ranges obtained with the two market restrictions are performed. Finally, we conclude that arbitrage arguments are not enough to define the optimal exercise policy.
Descrição
Palavras-chave
American derivatives Pricing Incomplete markets Dry markets Superreplication Randomized stopping times Strong duality
Contexto Educativo
Citação
Amaro de Matos, João and Lacerda, Ana, Dry Markets and Superreplication Bounds of American Derivatives (October, 2004). FEUNL Working Paper Series No. 461