Almost-sure hedging with permanent price impact |
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| Authors: | Bruno Bouchard Grégoire Loeper Yiyi Zou |
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| Institution: | 1.CEREMADE,Université Paris Dauphine, and CREST-ENSAE,Paris cedex 16,France;2.BNP-Paribas and FiQuant—Chaire de Finance Quantitative,Paris,France |
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| Abstract: | We consider a financial model with permanent price impact. Continuous-time trading dynamics are derived as the limit of discrete rebalancing policies. We then study the problem of superhedging a European option. Our main result is the derivation of a quasilinear pricing equation. It holds in the sense of viscosity solutions. When it admits a smooth solution, it provides a perfect hedging strategy. |
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