Market Delay and G-expectations

Abstract

We study super-replication of contingent claims in markets with delayed filtration. The first result in this paper reveals that in the Black--Scholes model with constant delay the super-replication price is prohibitively costly and leads to trivial buy-and-hold strategies. Our second result says that the scaling limit of super--replication prices for binomial models with a fixed number of times of delay $H$ is equal to the $G$--expectation with volatility uncertainty interval $[0,\sigma \sqrt{H+1}]$.

14 pages