TL;DR
This paper extends semi-static trading strategies to include dynamic trading in options, providing improved model-independent price bounds for exotic derivatives through duality and new pricing rule characterizations.
Contribution
It introduces a framework allowing dynamic trading in options within semi-static strategies, enhancing the accuracy of super-replication price bounds for exotic derivatives.
Findings
Duality results for extended trading strategies
Precise characterization of pricing rules for dynamic options
Improved price bounds over traditional martingale optimal transport methods
Abstract
In this paper we extend discrete time semi-static trading strategies by also allowing for dynamic trading in a finite amount of options, and we study the consequences for the model-independent super-replication prices of exotic derivatives. These include duality results as well as a precise characterization of pricing rules for the dynamically tradable options triggering an improvement of the price bounds for exotic derivatives in comparison with the conventional price bounds obtained through the martingale optimal transport approach.
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