Super-replication with fixed transaction costs

Peter Bank; Yan Dolinsky

doi:10.1214/17-AAP1372

Super-replication with fixed transaction costs

Peter Bank, Yan Dolinsky

Department of Statistics

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

We study super-replication of contingent claims in markets with fixed transaction costs. This can be viewed as a stochastic impulse control problem with a terminal state constraint. The first result in this paper reveals that in reasonable continuous time financial market models the super-replication price is prohibitively costly and leads to trivial buy-and-hold strategies. Our second result derives nontrivial scaling limits of super-replication prices for binomial models with small fixed costs.

Original language	English
Pages (from-to)	739-757
Number of pages	19
Journal	Annals of Applied Probability
Volume	29
Issue number	2
DOIs	https://doi.org/10.1214/17-AAP1372
State	Published - Apr 2019

Bibliographical note

Publisher Copyright:
© Institute of Mathematical Statistics, 2019.

Keywords

Binomial models
Conditional full support
Fixed transaction costs
Superreplication

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10.1214/17-AAP1372

Cite this

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Super-replication with fixed transaction costs

Abstract

Bibliographical note

Keywords

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