Exact replication under Delta constraints

This paper deals with the super-replication of non path-dependent European claims under additional convex constraints on the number of shares held in the portfolio. The corresponding super-replication price of a given claim has been widely studied in the literature and its terminal value, which dominates the claim of interest, is the so-called facelift transform of the claim. We investigate under which conditions the super-replication price and strategy of a large class of claims coincide with the exact replication price and strategy of the facelift transform of this claim. In dimension 1, we observe that this property is satisfied for any local volatility model. In any dimension, we exhibit a necessary and sufficient condition for this property, which combines the dynamics of the stock together with the characteristics of the closed convex set of constraints. The obtention of this condition relies on the introduction of the notion of first order viability property for linear parabolic PDEs. We investigate in details several practical cases of interest: multidimensional Black Scholes model, non-tradable assets or short selling restrictions.no