Financial/Actuarial Mathematics Seminar

We investigate the robust hedging of options depending on the local time of the underlying process using a stochastic control approach. By means of Vallois' Skorokhod embeddings, we identify the optimal hedging strategies as well as the market models that realize the extremal no-arbitrage prices. In addition, under appropriate conditions, we derive a new solution to the two-marginal Skorokhod embedding as a generalization of the Vallois solution which, to the best of our knowledge, is the first of its kind in the literature. Speaker(s): Gaoyue Guo (UM)