Advanced Search
MyIDEAS: Login

Optimal Replication of Contingent Claims under Portfolio Constraints

Contents:

Author Info

  • Broadie, Mark
  • Cvitanic, Jaksa
  • Soner, H Mete

Abstract

We determine the minimum cost of superreplicating a nonnegative contingent claim when there are convex constraints on portfolio weights. We show that the optimal cost with constraints is equal to the price of a related claim without constraints. The related claim is a dominating claim, that is, a claim whose payoffs are increased in an appropriate way relative to the original claim. The results hold for a variety of options, including some path-dependent options. Constraints on the gamma of the replicating portfolio, constraints on portfolio amounts, and constraints on the number of shares are also considered. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

Download Info

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 11 (1998)
Issue (Month): 1 ()
Pages: 59-79

as in new window
Handle: RePEc:oup:rfinst:v:11:y:1998:i:1:p:59-79

Contact details of provider:
Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Fax: 919-677-1714
Email:
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC

Order Information:
Web: http://www4.oup.co.uk/revfin/subinfo/

Related research

Keywords:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jean-Fran\c{c}ois Chassagneux & Romuald Elie & Idris Kharroubi, 2013. "When terminal facelift enforces Delta constraints," Papers 1307.6020, arXiv.org.
  2. Kevin Huang, . "On infinite-horizon minimum-cost hedging under cone constraints," Working Papers 2000-22, Utah State University, Department of Economics.
  3. Dell'Era Mario, M.D., 2008. "Pricing of the European Options by Spectral Theory," MPRA Paper 17429, University Library of Munich, Germany.
  4. Cass, David & Siconolfi, Paolo & Villanacci, Antonio, 2001. "Generic regularity of competitive equilibria with restricted participation," Journal of Mathematical Economics, Elsevier, vol. 36(1), pages 61-76, September.
  5. Charalambos D. Aliprantis & Rabee Tourky, 2002. "Markets That Don'T Replicate Any Option," Department of Economics - Working Papers Series 832, The University of Melbourne.
  6. Dell'Era Mario, M.D., 2008. "Pricing of Double Barrier Options by Spectral Theory," MPRA Paper 17502, University Library of Munich, Germany.
  7. Aliprantis, Charalambos D. & Polyrakis, Yiannis A. & Tourky, Rabee, 2002. "The cheapest hedge," Journal of Mathematical Economics, Elsevier, vol. 37(4), pages 269-295, July.
  8. C. D. Aliprantis & D. Brown & J. Werner, 1999. "Minimum-Cost Portfolio Insurance," Discussion Paper Serie A 599, University of Bonn, Germany.
  9. Imen Bentahar & Bruno Bouchard, 2006. "Barrier Option Hedging under Constraints: A Viscosity Approach," SFB 649 Discussion Papers SFB649DP2006-022, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
  10. Jun Sekine, 2002. "On superhedging under delta constraints," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(2), pages 103-121.
  11. H. Mete Soner & Umut Cetin & Nizar Touzi, 2010. "Option hedging for small investors under liquidity costs," LSE Research Online Documents on Economics 28992, London School of Economics and Political Science, LSE Library.
  12. Aliprantis, Charalambos D. & Monteiro, Paulo K. & Tourky, Rabee, 2004. "Non-marketed options, non-existence of equilibria, and non-linear prices," Journal of Economic Theory, Elsevier, vol. 114(2), pages 345-357, February.
  13. Peter Bank & Selim G\"okay, 2013. "Superreplication when trading at market indifference prices," Papers 1310.3113, arXiv.org.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:11:y:1998:i:1:p:59-79. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.