Pathwise superreplication via Vovk’s outer measure

Since Hobson’s seminal paper (Hobson in Finance Stoch. 2:329–347, 1998), the connection between model-independent pricing and the Skorokhod embedding problem has been a driving force in robust finance. We establish a general pricing–hedging duality for financial derivatives which are susceptible to the Skorokhod approach.Using Vovk’s approach to mathematical finance, we derive a model-independent superreplication theorem in continuous time, given information on finitely many marginals. Our result covers a broad range of exotic derivatives, including lookback options, discretely monitored Asian options, and options on realized variance.     

Asset Allocation of Two‐Person Households under Different Longevity Expectations

This study examines asset allocations of near‐elderly couples when spouses have different longevity expectations. Since the risk‐adjusted return on equities increases with investment horizon, a spouse who expects longer retirement period has an incentive to hold riskier portfolio. Using data from the Health and Retirement Study, we show that portfolio riskiness increases with the subjective survival probability of the decision‐making spouse. As predicted by the bargaining model, portfolio outcomes are uncorrelated with the horizon of the spouse who has less bargaining power. Results also show that the extent expected horizon is incorporated into asset allocation depends on the decider's gender. The share of equities depends on the husband's expected horizon when he leads decision making but not on the wife's horizon when she has more power. These findings contradict the prediction that wife‐led households may hold more equities than do husband‐led households because of their longer lifespan.     

Sharp bounds on change in expected values and variances for single risk analysis in the flood catastrophe model

In the paper we propose a method how to assess sharp bounds on change in the expected value and variance of the individual loss distributions of the risks in the flood catastrophe model. The method does not involve the use of the whole model, only the river discharge distributions and above mentioned loss distribution moments are required. We present the method on a case study inspired by floods in Poland.