Hedging of American options under transaction costs (Q2271728)

The authors study the hedging problem for a continuous-time model of a financial market with proportional transaction costs. The result is the dual description of the set of initial endowments of self-financing portfolios super-replicating an American-type contingent claim which is a right-continuous adapted vector process describing the number of assets to be delivered at the exercise date. The full proofs of the basic properties of the portfolio processes are given. The main theorem is formulated and proved in analytic terms and then the financial interpretation is presented in terms of coherent price systems.