Scaling Limits for Super--replication with Transient Price Impact

Peter Bank and Yan Dolinsky

Papers from arXiv.org

Abstract: We prove a scaling limit theorem for the super-replication cost of options in a Cox--Ross--Rubinstein binomial model with transient price impact. The correct scaling turns out to keep the market depth parameter constant while resilience over fixed periods of time grows in inverse proportion with the duration between trading times. For vanilla options, the scaling limit is found to coincide with the one obtained by PDE methods in [12] for models with purely temporary price impact. These models are a special case of our framework and so our probabilistic scaling limit argument allows one to expand the scope of the scaling limit result to path-dependent options.

Date: 2018-10, Revised 2019-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://arxiv.org/pdf/1810.07832 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1810.07832

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().