Superreplication with Proportional Transaction Cost Under Model Uncertainty

24 Pages Posted: 28 May 2020

See all articles by Bruno Bouchard

Bruno Bouchard

Université Paris Dauphine - CEREMADE

Shuoqing Deng

affiliation not provided to SSRN

Date Written: July 2019

Abstract

We consider a discrete‐time financial market with proportional transaction cost under model uncertainty, and study a superreplication problem. We recover the duality results that are well known in the classical dominated context. Our key argument consists in using a randomization technique together with the minimax theorem to convert the initial problem to a frictionless problem on an enlarged space. This allows us to appeal to the techniques and results of Bouchard and Nutz to obtain the duality result.

Keywords: duality, model uncertainty, superreplication, transaction cost

Suggested Citation

Bouchard, Bruno and Deng, Shuoqing, Superreplication with Proportional Transaction Cost Under Model Uncertainty (July 2019). Mathematical Finance, Vol. 29, Issue 3, pp. 837-860, 2019, Available at SSRN: https://ssrn.com/abstract=3613162 or http://dx.doi.org/10.1111/mafi.12197

Bruno Bouchard (Contact Author)

Université Paris Dauphine - CEREMADE ( email )

Place du Marechal de Lattre de Tassigny
Paris Cedex 16, 75775
France

Shuoqing Deng

affiliation not provided to SSRN

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