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Pré-Publication, Document De Travail Année : 2013

Hedging under an expected loss constraint with small transaction costs

Résumé

We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small transactions is used to obtain a tractable model. A general expansion theory is developed using the dynamic programming approach. Explicit formulae are also obtained in the special cases of an exponential or power loss function. As a corollary, we retrieve the asymptotics for the exponential utility indifference price.
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Dates et versions

hal-00863562 , version 1 (19-09-2013)
hal-00863562 , version 2 (11-09-2014)

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Bruno Bouchard, Ludovic Moreau, Mete H. Soner. Hedging under an expected loss constraint with small transaction costs. 2013. ⟨hal-00863562v1⟩
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