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Hedging under Transaction Costs in Currency Markets: a Continuous‐Time Model[Note 1. Research was done during a visit of the first ...]
Author(s) -
KABANOV YURI M.,
LAST GÜNTER
Publication year - 2002
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/1467-9965.00004
Subject(s) - semimartingale , hedge , transaction cost , economics , portfolio , currency , solvency , financial economics , monetary economics , microeconomics , market liquidity , mathematics , ecology , biology
We consider a general semimartingale model of a currency market with transaction costs. Assuming that the price process is continuous and the solvency cone is proper we prove a hedging theorem describing the set of initial endowments that allows the investor to hedge a contingent claim in various currencies by a self‐financing portfolio.