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Minimum Cost Super-Hedging in a Discrete Time Incomplete Multi-Asset Binomial Market

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  • Jarek Kk{e}dra
  • Assaf Libman
  • Victoria Steblovskaya

Abstract

We consider a multi-asset incomplete model of the financial market, where each of $m\geq 2$ 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 the minimum cost super-hedging strategies for a wide class of European type multi-asset contingent claims. This class includes European basket call and put options, among others. Since a super-hedge is a non-self-financing arbitrage strategy, it produces non-negative local residuals, for which we also give explicit formulas. This paper completes the foundation started in previous work of the authors for the extension of our results to a more realistic market model.

Suggested Citation

  • Jarek Kk{e}dra & Assaf Libman & Victoria Steblovskaya, 2023. "Minimum Cost Super-Hedging in a Discrete Time Incomplete Multi-Asset Binomial Market," Papers 2301.02912, arXiv.org, revised May 2024.
    • Handle: RePEc:arx:papers:2301.02912
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