We solve the superhedging problem for European options in an illiquid extension of the Black–Scholes model, in which transactions have transient price impact and the costs and strategies for hedging are affected by physical or cash settlement requirements at maturity. Our analysis is based on...

Value functions of differential games with L∞ criterion over infinite horizon are known to possess poor regularity. As an alternative to generalized solutions of the Isaacs equation, that usually requires some regularity properties, we propose a characterization of the value functions using...