A note on super-replicating strategies
- 15 June 1994
- journal article
- Published by The Royal Society in Philosophical Transactions A
- Vol. 347 (1684) , 485-494
- https://doi.org/10.1098/rsta.1994.0058
Abstract
The standard Black-Scholes option pricing methodology fails in the presence of transaction costs because portfolios that exactly replicate the option pay-off no longer exist. Several alternative approaches have been proposed; our purpose is to examine one of them which is based on the idea of ‘super-replicating’ portfolios. It is argued that this approach does not lead to a viable theory of option pricing in continuous time.Keywords
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