The multi-dimensional super-replication problem under gamma constraints

  title={The multi-dimensional super-replication problem under gamma constraints},
  author={Patrick Cheridito},
The classical Black–Scholes hedging strategy of a European contingent claim may require rapid changes in the replicating portfolio. One approach to avoid this is to impose a priori bounds on the variations of the allowed trading strategies, called gamma constraints. Under such a restriction, it is in general no longer possible to replicate a European contingent claim, and super-replication is a commonly used alternative. This paper characterizes the infimum of the initial capitals that allow an… CONTINUE READING
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