Super-Replication with Fixed Transaction Costs
Mathematical Finance
2018-10-16 v3
Abstract
We study super--replication of contingent claims in markets with fixed transaction costs. This can be viewed as a stochastic impulse control problem with a terminal state constraint. The first result in this paper reveals that in reasonable continuous time financial market models the super--replication price is prohibitively costly and leads to trivial buy--and--hold strategies. Our second result derives nontrivial scaling limits of super--replication prices for binomial models with small fixed costs.
Keywords
Cite
@article{arxiv.1610.09234,
title = {Super-Replication with Fixed Transaction Costs},
author = {Peter Bank and Yan Dolinsky},
journal= {arXiv preprint arXiv:1610.09234},
year = {2018}
}