Almost-sure hedging with permanent price impact

Bruno Bouchard, Grégoire Loeper, Yiyi Zou

Research output: Contribution to journalArticleResearchpeer-review

8 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)741-771
Number of pages31
JournalFinance and Stochastics
Volume20
Issue number3
DOIs
Publication statusPublished - 1 Jul 2016
Externally publishedYes

Keywords

  • Hedging
  • Price impact

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