Superhedging Under Ratio Constraint

20 Pages Posted: 31 Dec 2014

See all articles by Yingshan Chen

Yingshan Chen

National University of Singapore (NUS) - Department of Mathematics

Min Dai

National University of Singapore (NUS) - Department of Mathematics

Jing Xu

National University of Singapore (NUS) - Department of Mathematics

Mingyu Xu

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences

Date Written: December 31, 2014

Abstract

We consider superhedging of contingent claims under ratio constraint. It has been widely recognized that the minimum cost of superhedging a contingent claim with certain constraints is equal to the price of a dominating claim without constraints. In terms of the backward stochastic differential equation and the variational inequality equation approach, we revisit this result and provide two counterexamples.

Keywords: superhedging, ratio constraint, dominating claim, counterexample

JEL Classification: G12, G13

Suggested Citation

Chen, Yingshan and Dai, Min and Xu, Jing and Xu, Mingyu, Superhedging Under Ratio Constraint (December 31, 2014). Available at SSRN: https://ssrn.com/abstract=2544235 or http://dx.doi.org/10.2139/ssrn.2544235

Yingshan Chen

National University of Singapore (NUS) - Department of Mathematics ( email )

10 Kent Ridge Crescent
Singapore, 119260
Singapore

Min Dai (Contact Author)

National University of Singapore (NUS) - Department of Mathematics ( email )

Singapore

Jing Xu

National University of Singapore (NUS) - Department of Mathematics ( email )

10 Kent Ridge Crescent
Singapore, 119260
Singapore

Mingyu Xu

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Sciences ( email )

Zhong-Guan-Cun-Dong-Lu 55, Haidian District
Beijing, 100080, P.R., Beijing 100080
China

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