Abstract
In this paper we analyse the superreplication approach to stochastic volatility in the case of European interest rates derivatives. We exploit some general results of [13] and [17] to prove that the minimal superstrategy is given by the solution of a nonlinear PDE associated to the model, that is the so-called Black-Scholes-Barenblatt (BSB) equation. In particular we show how this approach applies to the case of caps and floors extending results of [6].
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Gozzi, F., Vargiolu, T. (2002). On the Superreplication Approach for European Interest Rates Derivatives. In: Dalang, R.C., Dozzi, M., Russo, F. (eds) Seminar on Stochastic Analysis, Random Fields and Applications III. Progress in Probability, vol 52. Birkhäuser, Basel. https://doi.org/10.1007/978-3-0348-8209-5_12
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DOI: https://doi.org/10.1007/978-3-0348-8209-5_12
Publisher Name: Birkhäuser, Basel
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