Theory of Probability and Mathematical Statistics
Minimum cost super-hedging in a discrete time incomplete multi-asset binomial market
Jarek Kędra, Assaf Libman and Victoria Steblovskaya
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Abstract: We consider a multi-asset incomplete model of the financial market, where each of m≥ 2 risky assets follows the binomial dynamics, and no assumptions are made on the joint distribution of the risky asset price processes. We provide explicit formulas for a non-self-financing minimum cost super-hedging strategy for a wide class of European type multi-asset contingent claims. This class includes European basket call and put options, among others. We also give explicit formulas for non-negative local residual amounts that are produced by a non-self-financing arbitrage super-hedging strategy at every time step. This paper completes the foundation started in the previous work of the authors for the extension of our results to a more realistic market model.
Keywords: Discrete time model, hedging, martingale measure
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