Superreplication of European multiasset derivatives with bounded stochastic volatility

In this paper we analyze the superreplication approach in stochastic volatility models in the case of European multiasset derivatives. We prove that the Black-Scholes-Barenblatt (BSB) equation gives a superhedging strategy even if its solution is not twice differentiable. This is done under convexity assumptions on the final payoff h that are verified in some applications presented here.

Authors and Affiliations

1. Dipartimento di Matematica per le Decisioni, Economiche, Finanziarie e Assicurative, Università di Roma “La Sapienza”, Via del Castro Laurenziano 9 – I-00100 Roma (Italy) (e-mail: gozzi@dm.unipi.it), , , , , , IT

   Fausto Gozzi

2. Dipartimento di Matematica Pura ed Applicata, Università di Padova, Via Belzoni 7 – I-35131 Padova (Italy) (e-mail: vargiolu@math.unipd.it), , , , , , IT

   Tiziano Vargiolu

Manuscript received: July 2001/Final version received: October 2001

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