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Finance and Stochastics
Published in: Finance and Stochastics 2/2014

01-04-2014

Robust hedging with proportional transaction costs

Authors: Yan Dolinsky, H. Mete Soner

Published in: Finance and Stochastics | Issue 2/2014

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Abstract

A duality for robust hedging with proportional transaction costs of path-dependent European options is obtained in a discrete-time financial market with one risky asset. The investor’s portfolio consists of a dynamically traded stock and a static position in vanilla options, which can be exercised at maturity. Trading of both options and stock is subject to proportional transaction costs. The main theorem is a duality between hedging and a Monge–Kantorovich-type optimization problem. In this dual transport problem, the optimization is over all probability measures that satisfy an approximate martingale condition related to consistent price systems, in addition to an approximate marginal constraint.
previous article Shifting martingale measures and the birth of a bubble as a submartingale
next article Asymptotics of implied volatility to arbitrary order

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Appendix
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Metadata
Title
Robust hedging with proportional transaction costs
Authors
Yan Dolinsky
H. Mete Soner
Publication date
01-04-2014
Publisher
Springer Berlin Heidelberg
Published in
Finance and Stochastics / Issue 2/2014
Print ISSN: 0949-2984
Electronic ISSN: 1432-1122
DOI
https://doi.org/10.1007/s00780-014-0227-x

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