Almost-sure hedging with permanent price impact

B. Bouchard, G. Loeper and Y. Zou

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Abstract: 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.

Date: 2015-03
New Economics Papers: this item is included in nep-mst
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Citations: View citations in EconPapers (6)

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