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Superhedging under ratio constraint

Author

Listed:
  • Chen, Yingshan
  • Dai, Min
  • Xu, Jing
  • Xu, Mingyu

Abstract

We consider superhedging of contingent claims under ratio constraint. It has been widely recognized that the minimum cost of superhedging a contingent claim with certain portfolio constraints is equal to the price of a claim with appropriately modified payoff but without constraints. In terms of the backward stochastic differential equation (BSDE) and the variational inequality equation approach, we revisit this result and provide two counterexamples.

Suggested Citation

  • Chen, Yingshan & Dai, Min & Xu, Jing & Xu, Mingyu, 2015. "Superhedging under ratio constraint," Journal of Economic Dynamics and Control, Elsevier, vol. 58(C), pages 250-264.
    • Handle: RePEc:eee:dyncon:v:58:y:2015:i:c:p:250-264
    DOI: 10.1016/j.jedc.2015.06.009
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    References listed on IDEAS

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    Cited by:

    1. Baojun Bian & Xinfu Chen & Min Dai & Shuaijie Qian, 2021. "Penalty method for portfolio selection with capital gains tax," Mathematical Finance, Wiley Blackwell, vol. 31(3), pages 1013-1055, July.

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    More about this item

    Keywords

    Superhedging; Ratio constraint; European option; Asian option;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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