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.
Citation
Peter Bank. Yan Dolinsky. "Super-replication with fixed transaction costs." Ann. Appl. Probab. 29 (2) 739 - 757, April 2019. https://doi.org/10.1214/17-AAP1372
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