On the Super-Replicating Approach When Trading a Derivative is Limited

Quantitative Finance, 2008,Vol. 8, No. 3, 285-297

28 Pages Posted: 4 Apr 2006 Last revised: 13 Nov 2017

See all articles by Sergey Isaenko

Sergey Isaenko

Concordia University, Quebec - Department of Finance

Date Written: May 20, 2004

Abstract

We extend the theory of super-replicating a European option by relaxing its two main assumptions: We take into account the constraints on trading the option and allow it to be traded inter-temporally. The first extension has a dramatic effect on the price of a portfolio hedging the option, while the second one has a dramatic effect on finding arbitrage opportunities in the market. We introduce a new approach for identifying the best arbitrage opportunities in the market with frictions.

Keywords: Derivatives, Arbitrage

JEL Classification: D52, G12, G13

Suggested Citation

Isaenko, Sergey, On the Super-Replicating Approach When Trading a Derivative is Limited (May 20, 2004). Quantitative Finance, 2008,Vol. 8, No. 3, 285-297, Available at SSRN: https://ssrn.com/abstract=548644 or http://dx.doi.org/10.2139/ssrn.548644

Sergey Isaenko (Contact Author)

Concordia University, Quebec - Department of Finance ( email )

John Molson School of Business
Concordia University. 1455 de Maisonneuve Blvd.W.
Montreal, Quebec, H3G 1M8
Canada
1-514-848-2424 ext.2797 (Phone)
1-514-848-4500 (Fax)

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