Convex duality with transaction costs

DOI10.1287/MOOR.2016.0811zbMATH Open1414.91370arXiv1502.01735OpenAlexW1513971097MaRDI QIDQ5739151FDOQ5739151

Authors: Yan Dolinsky, H. Mete Soner 

Publication date: 2 June 2017

Published in: Mathematics of Operations Research (Search for Journal in Brave)

Abstract: Convex duality for two two different super--replication problems in a continuous time financial market with proportional transaction cost is proved. In this market, static hedging in a finite number of options, in addition to usual dynamic hedging with the underlying stock, are allowed. The first one the problems considered is the model--independent hedging that requires the super--replication to hold for every continuous path. In the second one the market model is given through a probability measure P and the inequalities are understood P almost surely. The main result, using the convex duality, proves that the two super--replication problems have the same value provided that P satisfies the conditional full support property. Hence, the transaction costs prevents one from using the structure of a specific model to reduce the super--replication cost.

Full work available at URL: https://arxiv.org/abs/1502.01735

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zbMATH Keywords

European optionstransaction costssemi-static hedgingconditional full supportmodel-free hedging

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Martingales with continuous parameter (60G44)

Cited In (6)

• On robust fundamental theorems of asset pricing in discrete time
• Super‐replication with transaction costs under model uncertainty for continuous processes
• Duality for pathwise superhedging in continuous time
• An explicit martingale version of the one-dimensional Brenier's theorem with full marginals constraint
• Pointwise Arbitrage Pricing Theory in Discrete Time
• Hedging of claims with physical delivery under convex transaction costs

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