Robust hedging with proportional transaction costs

Option Hedging with Transaction Costs

Optimal Hedging of Derivatives with Transaction Costs

We investigate the optimal strategy over a finite time horizon for a portfolio of stock and bond and a derivative in an multiplicative Markovian market model with transaction costs (friction). The optimization problem is solved by a Hamilton-Bellman-Jacobi equation, which by the verification theorem has well-behaved solutions if certain conditions on a potential are satisfied. In the case at ha...

Optimal Hedging of Options with Transaction Costs

One of the most successful approaches to option hedging with transaction costs is the utility based approach, pioneered by Hodges and Neuberger (1989). Judging against the best possible tradeoff between the risk and the costs of a hedging strategy, this approach seems to achieve excellent empirical performance. However, this approach has one major drawback that prevents the broad application of...

Multivariate utility maximization with proportional transaction costs

We present an optimal investment theorem for a currency exchange model with random and possibly discontinuous proportional transaction costs. The investor’s preferences are represented by a multivariate utility function, allowing for simultaneous consumption of any prescribed selection of the currencies at a given terminal date. We prove the existence of an optimal portfolio process under the a...

On the Hedging of American Options in Discrete Time Markets with Proportional Transaction Costs

In this note, we consider a general discrete time financial market with proportional transaction costs as in Kabanov and Stricker [4], Kabanov et al. [5], Kabanov et al. [6] and Schachermayer [10]. We provide a dual formulation for the set of initial endowments which allow to super-hedge some American claim. We show that this extends the result of Chalasani and Jha [1] which was obtained in a m...