On the super-replicating approach when trading a derivative is limited

Sergei Isaenko ()

Quantitative Finance, 2008, vol. 8, issue 3, 285-297

Abstract: We extend the theory of super-replicating a European option by relaxing its two main assumptions: we take into account the constraints on trading the option and allow it to be traded inter-temporally. The first extension has a dramatic effect on the price of a portfolio hedging the option, while the second has a dramatic effect on finding arbitrage opportunities in the market. We introduce a new approach for identifying the best arbitrage opportunities in the market with friction.

Keywords: Derivative pricing models; Derivatives hedging; Asset pricing; Risk management (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1080/14697680701458018

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