Robust Hedging with Proportional Transaction Costs
AbstractDuality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static position in vanilla options which can be exercised at maturity. Both the stock and the option trading is subject to proportional transaction costs. The main theorem is duality between hedging and a Monge-Kantorovich type optimization problem. In this dual transport problem the optimization is over all the probability measures which satisfy an approximate martingale condition related to consistent price systems in addition to the usual marginal constraints.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1302.0590.
Date of creation: Feb 2013
Date of revision: Aug 2013
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