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Probability and Computational Finance Seminar
Yan Dolinsky
ETH, Zurich
Title: Hedging of Game Options With the Presence of Transaction Costs

Abstract: We study the problem of super--replication for game options under proportional transaction costs. We consider a multidimensional model which is an extension of the usual Black--Scholes (BS) model, in the sense that the volatility is a progressively measurable function of the stock. For this case we show that the super--replication price is the cheapest cost of a trivial super--replication strategy. This result is an extension of previous papers in which only European options with Markovian structure were considered. Levental and Skorohod suggested a purely probabilistic approach which is based on the Skorohod embedding and does not require a Markovian structure, but is limited to the one dimensional case. In this paper we propose another purely probabilistic approach which is based on the unpublished manuscript of Kusuoka.

Date: Monday, October 31, 2011
Time: 5:00 pm
Location: Wean Hall 6423
Submitted by:  Kramkov