Scaling limits for super-replication with transient price impact
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Publication:2174997
DOI10.3150/19-BEJ1189zbMATH Open1434.91061arXiv1810.07832MaRDI QIDQ2174997FDOQ2174997
Publication date: 27 April 2020
Published in: Bernoulli (Search for Journal in Brave)
Abstract: We prove a scaling limit theorem for the super-replication cost of options in a Cox--Ross--Rubinstein binomial model with transient price impact. The correct scaling turns out to keep the market depth parameter constant while resilience over fixed periods of time grows in inverse proportion with the duration between trading times. For vanilla options, the scaling limit is found to coincide with the one obtained by PDE methods in [12] for models with purely temporary price impact. These models are a special case of our framework and so our probabilistic scaling limit argument allows one to expand the scope of the scaling limit result to path-dependent options.
Full work available at URL: https://arxiv.org/abs/1810.07832
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Cited In (4)
- Reducing Obizhaeva-Wang-type trade execution problems to LQ stochastic control problems
- On the super-replicating approach when trading a derivative is limited
- Continuous-time duality for superreplication with transient price impact
- Optimal Trade Execution in an Order Book Model with Stochastic Liquidity Parameters
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