Almost-sure hedging with permanent price impact

Bruno Bouchard, Grégoire Loeper, Yiyi Zou

Research output: Contribution to journalArticleResearchpeer-review

6 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

Cite this

Bouchard, Bruno ; Loeper, Grégoire ; Zou, Yiyi. / Almost-sure hedging with permanent price impact. In: Finance and Stochastics. 2016 ; Vol. 20, No. 3. pp. 741-771.
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Almost-sure hedging with permanent price impact. / Bouchard, Bruno; Loeper, Grégoire; Zou, Yiyi.

In: Finance and Stochastics, Vol. 20, No. 3, 01.07.2016, p. 741-771.

Research output: Contribution to journalArticleResearchpeer-review

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