Super-replication in Stochastic Volatility Models under Portfolio Constraints

We study a financial market with incompleteness arising from two sources: stochastic volatility and portfolio constraints. The latter are given in terms of bounds imposed on the borrowing and short-selling of a ‘hedger’ in this market, and can be described by a closed convex set K . We find explicit characterizations of the minimal price needed to super-replicate European-type contingent claims in this framework. The results depend on whether the volatility is bounded away from zero and/or infinity, and also, on if we have linear dynamics for the stock price process, and whether the volatility process depends on the stock price. We use a previously known representation of the minimal price as a supremum of the prices in the corresponding shadow markets, and we derive a PDE characterization of that representation.