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On the Hedging of American Options in Discrete Time Markets with Proportional Transaction Costs

Temam, Emmanuel; Bouchard, Bruno (2005), On the Hedging of American Options in Discrete Time Markets with Proportional Transaction Costs, Electronic Journal of Probability, 10, 22, p. 746-760

Type
Article accepté pour publication ou publié
Date
2005
Journal name
Electronic Journal of Probability
Volume
10
Number
22
Publisher
Institute of Mathematical Statistics and the Bernoulli society.
Pages
746-760
Metadata
Show full item record
Author(s)
Temam, Emmanuel
Bouchard, Bruno
Abstract (EN)
In this note, we consider a general discrete time ¯nancial market with pro- portional transaction costs as in Kabanov and Stricker [4], Kabanov et al. [5], Kabanov et al. [6] and Schachermayer [10]. We provide a dual formulation for the set of initial endowments which allow to super-hedge some American claim. We show that this extends the result of Chalasani and Jha [1] which was ob- tained in a model with constant transaction costs and risky assets which evolve on a ¯nite dimensional tree. We also provide fairly general conditions under which the expected formulation in terms of stopping times does not work.
Subjects / Keywords
Transaction costs; Sum of random convex cones; Mathematical Finance
JEL
G10 - General

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