- Journal Article
Rights / licenseIn Copyright - Non-Commercial Use Permitted
A duality for robust hedging with proportional transaction costs of path-dependent European options is obtained in a discrete-time financial market with one risky asset. The investor’s portfolio consists of a dynamically traded stock and a static position in vanilla options, which can be exercised at maturity. Trading of both options and stock is subject to proportional transaction costs. The main theorem is a duality between hedging and a Monge–Kantorovich-type optimization problem. In this dual transport problem, the optimization is over all probability measures that satisfy an approximate martingale condition related to consistent price systems, in addition to an approximate marginal constraint. Show more
Journal / seriesFinance and Stochastics
Pages / Article No.
SubjectEuropean options; Robust hedging; Transaction costs; Weak convergence; Consistent price systems; Optimal transport
Organisational unit03658 - Schweizer, Martin / Schweizer, Martin
03844 - Soner, Mete (emeritus) / Soner, Mete (emeritus)
NotesIt was possible to publish this article open access thanks to a Swiss National Licence with the publisher.
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