Robust hedging with proportional transaction costs

Yan Dolinsky, H. Mete Soner

Research output: Contribution to journalArticlepeer-review

49 Scopus citations


A duality for robust hedging with proportional transaction costs of pathdependent European options is obtained in a discrete-time financial market with one risky asset. The investor's portfolio consists of a dynamically traded stock and a static position in vanilla options, which can be exercised at maturity. Trading of both options and stock is subject to proportional transaction costs. The main theorem is a duality between hedging and a Monge-Kantorovich-type optimization problem. In this dual transport problem, the optimization is over all probability measures that satisfy an approximate martingale condition related to consistent price systems, in addition to an approximate marginal constraint.

Original languageEnglish (US)
Pages (from-to)327-347
Number of pages21
JournalFinance and Stochastics
Issue number2
StatePublished - Apr 2014
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Finance
  • Statistics, Probability and Uncertainty


  • Consistent price systems
  • European options
  • Fundamental theorem of asset pricing
  • Optimal transport
  • Robust hedging
  • Superreplication
  • Transaction costs
  • Weak convergence


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