Almost-sure hedging with permanent price impact
Bouchard, Bruno; Loeper, Grégoire; Zou, Yiyi (2016), Almost-sure hedging with permanent price impact, Finance and Stochastics, 20, 3, p. 741-771. 10.1007/s00780-016-0295-1
TypeArticle accepté pour publication ou publié
External document linkhttps://arxiv.org/abs/1503.05475v1
Journal nameFinance and Stochastics
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Abstract (EN)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.
Subjects / KeywordsHedging; price impact
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