Explicit characterization of the super-replication strategy in financial markets with partial transaction costs

2004/12/13 by Imen Bentahar, Bentahar, Imen, Bruno Bouchard +1
Mathematics · #60G44 #60H30 #90A16 #93E20 #AMS 1991: 90A09 #FOS: Mathematics #Probability (math.PR) #math.PR #msc:60G44 #msc:60H30 #msc:90A09 #msc:90A16 #msc:93E20

paper · pdf · doi:10.48550/arxiv.math/0412247

arxiv created 2005/01/07 · arxiv updated 2009/12/01

Abstract

We consider a multivariate financial market with transaction costs and study the problem of finding the minimal initial capital needed to hedge, without risk, European-type contingent claims. The model is similar to the one considered in Bouchard and Touzi (2000), except that some of the assets can be exchanged freely, i.e. without paying transaction costs. In this context, we generalize the result of the above paper and prove that the value of this stochastic control problem is given by the cost of the cheapest hedging strategy in which the number of non-freely exchangeable assets is kept constant over time.

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