Deflator-based claim replication

ID: deflator-based-claim-replication

In a one-factor market whose filtration is the usual augmentation of the natural Brownian filtration, with nonzero spot volatility and local martingale deflator , the Brownian martingale representation theorem constructs a nonnegative replicating strategy for a bounded nonnegative contingent claim. The minimal initial cost among nonnegative self-financing portfolios is .

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