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Super-replication of European options with a derivative asset under constrained finite variation strategies

Abstract : We consider a financial market, in which a first asset will be referred as the underlying and the second one as a derivative. In this market, the volatility on the underlying depends of the price of the derivative. Furthermore, the derivative is constrained to be traded with finite variation strategies. We study the super-replication problem of an European option on the underlying, and characterize its price as the unique viscosity solution of a partial differential equation with appropriate boundary conditions. We also give a dual representation of the price, as the supremum of the risk neutral expectation over a range of dynamics of the price of the derivative.
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https://hal.archives-ouvertes.fr/hal-00012183
Contributor : Benjamin Bruder <>
Submitted on : Tuesday, October 18, 2005 - 10:25:28 AM
Last modification on : Thursday, December 10, 2020 - 10:59:37 AM
Long-term archiving on: : Thursday, April 1, 2010 - 10:46:54 PM

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  • HAL Id : hal-00012183, version 1

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Benjamin Bruder. Super-replication of European options with a derivative asset under constrained finite variation strategies. 2005. ⟨hal-00012183⟩

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