The scaling limit of superreplication prices with small transaction costs in the multivariate case
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Derivative securities (option pricing, hedging, etc.) (91G20) Central limit and other weak theorems (60F05) Portfolio theory (91G10) Functional limit theorems; invariance principles (60F17) Applications of stochastic analysis (to PDEs, etc.) (60H30) Actuarial science and mathematical finance (91G99)
Abstract: Kusuoka [ Limit Theorem on Option Replication Cost with Transaction Costs, Ann. Appl. Probab. 5, 198--221, (1995).] showed how to obtain non-trivial scaling limits of superreplication prices in discrete-time models of a single risky asset which is traded at properly scaled proportional transaction costs. This article extends the result to a multi-variate setup where the investor can trade in several risky assets. The -expectation describing the limiting price involves models with a volatility range around the frictionless scaling limit that depends not only on the transaction costs coefficients but also on the chosen complete discrete-time reference model.
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Cited in
(9)- Scaling limits of processes with fast nonlinear mean reversion
- Option replication with transaction cost under Knightian uncertainty
- On the limit behavior of option hedging sets under transaction costs
- On a multi-asset version of the Kusuoka limit theorem of option superreplication under transaction costs
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