Super-Replication with Fixed Transaction Costs

Peter Bank and Yan Dolinsky

Papers from arXiv.org

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.

Date: 2016-10, Revised 2018-10
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