Title:    Hedging of Game Options With the Presence of Transaction Costs

Speaker:  Yan Dolinsky
          ETH, Switzerland

Time:     Monday 3 October 2011, 16:15-18:00

Place:    Room U322
          TKK Main Building (Otakaari 1 M, Espoo)
         

Abstact:

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the unpublished manuscript of Kusuoka.