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Model-independent pricing with additional information - a Skorokhod embedding approach

Banff International Research Station for Mathematical Innovation and Discovery

We analyze the pricing problem of an agent having additional (potentially insider) information on the market in a model-independent setup. Following Hobson's approach we reformulate this problem as a constrained Skorokhod embedding problem, and show a natural supperreplication result. Furthermore, we establish a monotonicity principle for the constrained SEP, giving a geometric characterization of the support of the optimizers (in the spirit of Beiglboeck, Cox and Huesmann (2014)) which allows to link the additional information with geometric properties of the optimizers to the constrained embedding problem. Surprisingly, for certain types of information the absence of arbitrage can be easily checked by considering only unconstrained solutions. (The talk is based on joint work with Alex Cox and Martin Huesmann.)

Mathematics; Game theory, economics, social and behavioral sciences; Probability theory and stochastic processes

video/mp4

Author affiliation: London School of Economics

2017-01-25

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/59772

Unreviewed

http://creativecommons.org/licenses/by-nc-nd/4.0/