Risk-hedging a European option with a convex risk measure and without no-arbitrage condition

Abstract

In this article, we revisit the discrete-time problem of pricing a contingent claim with respect to a dynamic risk measure defined by its acceptance sets. Without any no-arbitrage condition, we show that it is possible to characterize the prices of a European claim. Our analysis reveals a natural weak no-arbitrage condition that we study. This is a condition formulated in terms of the (risk) hedging prices instead of the attainable claims. Our approach is not based on a robust representation of the risk measure and we do not suppose the existence of a risk-neutral probability measure.