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The face-lifting theorem for proportional transaction costs in multiasset models

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  • Blum Benedikt

Abstract

The paper presents a multi-dimensional version of the face-lifting theorem presented by Guasoni et al. [5] for the one-dimensional case. The theorem provides a closed-form solution to the superreplication problem of path-independent European options for proportional, infinitesimally small transaction costs in continuous time. This formula can be shown to hold true for all d-dimensional asset processes sharing a certain full-support property. Semimartingale or continuity assumptions made in earlier works could be dropped as well as certain restrictions on the payoff function. Examples concerning the impact of this result and sharpness of our assumptions are given.

Suggested Citation

  • Blum Benedikt, 2009. "The face-lifting theorem for proportional transaction costs in multiasset models," Statistics & Risk Modeling, De Gruyter, vol. 27(4), pages 357-369, December.
    • Handle: RePEc:bpj:strimo:v:27:y:2009:i:4:p:357-369:n:2
    DOI: 10.1524/stnd.2009.1039
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    References listed on IDEAS

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    1. Paolo Guasoni, 2006. "No Arbitrage Under Transaction Costs, With Fractional Brownian Motion And Beyond," Mathematical Finance, Wiley Blackwell, vol. 16(3), pages 569-582, July.
    2. Paolo Guasoni & Mikl'os R'asonyi & Walter Schachermayer, 2008. "Consistent price systems and face-lifting pricing under transaction costs," Papers 0803.4416, arXiv.org.
    3. repec:dau:papers:123456789/1533 is not listed on IDEAS
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