On the super replication price of unbounded claims
Biagini, Sara ; Frittelli, Marco
Ann. Appl. Probab., Tome 14 (2004) no. 1, p. 1970-1991 / Harvested from Project Euclid
In an incomplete market the price of a claim f in general cannot be uniquely identified by no arbitrage arguments. However, the “classical” super replication price is a sensible indicator of the (maximum selling) value of the claim. When f satisfies certain pointwise conditions (e.g., f is bounded from below), the super replication price is equal to sup QEQ[f], where Q varies on the whole set of pricing measures. Unfortunately, this price is often too high: a typical situation is here discussed in the examples. ¶ We thus define the less expensive weak super replication price and we relax the requirements on f by asking just for “enough” integrability conditions. ¶ By building up a proper duality theory, we show its economic meaning and its relation with the investor’s preferences. Indeed, it turns out that the weak super replication price of f coincides with sup Q∈MΦEQ[f], where MΦ is the class of pricing measures with finite generalized entropy (i.e., E[Φ( $\frac{dQ}{dP}$ )]<∞) and where Φ is the convex conjugate of the utility function of the investor.
Publié le : 2004-11-14
Classification:  Super replication price,  generalized entropy,  reasonable asymptotic elasticity,  preferences,  incomplete markets,  utility maximization,  duality,  60G42,  60G44
@article{1099674085,
     author = {Biagini, Sara and Frittelli, Marco},
     title = {On the super replication price of unbounded claims},
     journal = {Ann. Appl. Probab.},
     volume = {14},
     number = {1},
     year = {2004},
     pages = { 1970-1991},
     language = {en},
     url = {http://dml.mathdoc.fr/item/1099674085}
}
Biagini, Sara; Frittelli, Marco. On the super replication price of unbounded claims. Ann. Appl. Probab., Tome 14 (2004) no. 1, pp.  1970-1991. http://gdmltest.u-ga.fr/item/1099674085/