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Almost-sure hedging with permanent price impact

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Date
2016
Link to item file
https://arxiv.org/abs/1503.05475v1
Dewey
Probabilités et mathématiques appliquées
Sujet
Hedging; price impact
JEL code
G13; G12
Journal issue
Finance and Stochastics
Volume
20
Number
3
Publication date
2016
Article pages
741-771
Publisher
Springer
DOI
http://dx.doi.org/10.1007/s00780-016-0295-1
URI
https://basepub.dauphine.fr/handle/123456789/16170
Collections
  • CEREMADE : Publications
Metadata
Show full item record
Author
Bouchard, Bruno
Loeper, Grégoire
Zou, Yiyi
Type
Article accepté pour publication ou publié
Abstract (EN)
We consider a financial model with permanent price impact. Continuous-time trading dynamics are derived as the limit of discrete rebalancing policies. We then study the problem of superhedging a European option. Our main result is the derivation of a quasilinear pricing equation. It holds in the sense of viscosity solutions. When it admits a smooth solution, it provides a perfect hedging strategy.

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