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Almost-sure hedging with permanent price impact

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 super-hedging a European option. Our main result is the derivation of a quasi-linear pricing equation. It holds in the sense of viscosity solutions. When it admits a smooth solution, it provides a perfect hedging strategy.
Year of publication:
2015-03
Authors: Bouchard, B. ; Loeper, G. ; Zou, Y.
Institutions: arXiv.org
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application/pdf
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Type of publication: Book / Working Paper
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Persistent link: https://www.econbiz.de/10011205369
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