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On superhedging under delta constraints

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  • Jun Sekine

Abstract

The superhedging problem of derivative securities under the constraint of portfolio amounts is revisited. This paper considers more general forms of constraints, characterizes the minimal superhedging cost using a 'dual' maximization problem, and shows that a replicating strategy of the so-called 'face-lifted' claim gives a minimal superhedging strategy in the European option case. Also, as hinted by the static-replication technique, a superhedging strategy is computed for a knockout option in closed form.

Suggested Citation

  • Jun Sekine, 2002. "On superhedging under delta constraints," Applied Mathematical Finance, Taylor & Francis Journals, vol. 9(2), pages 103-121.
    • Handle: RePEc:taf:apmtfi:v:9:y:2002:i:2:p:103-121
    DOI: 10.1080/13504860210150941
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    References listed on IDEAS

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    1. Peter Carr & Katrina Ellis & Vishal Gupta, 1998. "Static Hedging of Exotic Options," Journal of Finance, American Finance Association, vol. 53(3), pages 1165-1190, June.
    2. Broadie, Mark & Cvitanic, Jaksa & Soner, H Mete, 1998. "Optimal Replication of Contingent Claims under Portfolio Constraints," The Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 59-79.
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