Super-hedging-pricing formulas and Immediate-Profit arbitrage for market models under random horizon
Résumé
In this paper, we consider the discrete-time setting, and the market model described by (S, F, τ). Herein F is the "public" flow of information which is available to all agents overtime, S is the discounted price process of d-tradable assets, and τ is an arbitrary random time whose occurrence might not be observable via F. Thus, we consider the larger flow G which incorporates F and makes τ an observable random time. This framework covers the credit risk theory setting, the life insurance setting and the setting of employee stock option valuation. For the stopped model (S τ , G) and for various vulnerable claims, based on this model, we address the super-hedging pricing valuation problem and its intrinsic Immediate-Profit arbitrage (IP hereafter for short). Our first main contribution lies in singling out the impact of change of prior and/or information on conditional essential supremum, which is a vital tool in super-hedging pricing. The second main contribution consists of describing as explicit as possible how the set of super-hedging prices expands under the stochasticity of τ and its risks, and we address the IP arbitrage for (S τ , G) as well. The third main contribution resides in elaborating as explicit as possible pricing formulas for vulnerable claims, and singling out the various informational risks in the prices' dynamics.
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