Hedging under Gamma constraints by optimal stopping and face-lifting

@inproceedings{Soner2005HedgingUG,
  title={Hedging under Gamma constraints by optimal stopping and face-lifting},
  author={Halil Mete Soner},
  year={2005}
}
A super-replication problem with a gamma constraint, introduced in [12], is studied in the context of the one-dimensional Black and Scholes model. Several representations of the minimal super-hedging cost are obtained using the characterization derived in [3]. It is shown that the upper bound constraint on the gamma implies that the optimal strategy consists in hedging a conveniently face-lifted payoff function. Further an unusual connection between an optimal stopping problem and the lower… CONTINUE READING

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