Superhedging in illiquid markets

Details Superhedging in illiquid markets Superhedging in illiquid markets

2008-07-18

arxiv.org/abs/0807.2962v1

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

We study contingent claims in a discrete-time market model where trading costs are given by convex functions and portfolios are constrained by convex sets. In addition to classical frictionless markets and markets with transaction costs or bid-ask spreads, our framework covers markets with nonlinear illiquidity effects for large instantaneous trades. We derive dual characterizations of superhedging conditions for contingent claim processes in a market without a cash account. The characterizations are given in terms of stochastic discount factors that correspond to martingale densities in a market with a cash account. The dual representations are valid under a topological condition and a weak consistency condition reminiscent of the ``law of one price'', both of which are implied by the no arbitrage condition in the case of classical perfectly liquid market models. We give alternative sufficient conditions that apply to market models with nonlinear cost functions and portfolio constraints.

Affiliated with

Also associated with

No associations

Rating

Superhedging in illiquid markets does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Superhedging in illiquid markets, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Superhedging in illiquid markets will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-388423