Superhedging under ratio constraint

• DOI: 10.1016/j.jedc.2015.06.009
• Publication Date: 2015-07-04T21:22:11Z
• Authors: Yingshan Chen; Min Dai; Jing Xu; Mingyu Xu
• Keywords: Counterexample; Stochastic game

Abstract We consider superhedging of contingent claims under ratio constraint. It has been widely recognized that the minimum cost of superhedging a contingent claim with certain portfolio constraints is equal to the price of a claim with appropriately modified payoff but without constraints. In terms of the backward stochastic differential equation (BSDE) and the variational inequality equation approach, we revisit this result and provide two counterexamples.