Superreplication Under Gamma Constraints

In a financial market consisting of a nonrisky asset and a risky one, we study the minimal initial capital needed in order to superreplicate a given contingent claim under a gamma constraint. This is a constraint on the unbounded variation part of the hedging portfolio. We first consider the case in which the prices are given as general Markov diffusion processes and prove a verification theorem which characterizes the superreplication cost as the unique solution of a quasivariational inequality. In the context of the Black

• Type: Journal
• Year: 2000
• Where: SIAMCO
• Authors: H. Mete Soner, Nizar Touzi
• Keywords: Gamma Constraint, General Markov Diffusion, Minimal Initial Capital, SIAMCO 2000