Approximate hedging problem with transaction costs in stochastic volatility markets

Abstract : This paper investigates the problem of hedging European call options using Leland's strategy in stochastic volatility markets with transaction costs. Introducing a new form for the enlarged volatility in Leland's algorithm, we establish a limit theorem and determine a convergence rate for the hedging error. This provides a suggestion to release the underhedging property pointed out by Kabanov and Safarian (1997). Possibilities to improve the convergence rate and lower the option price inclusive transaction costs are also discussed.
Type de document :
Pré-publication, Document de travail
47. 2012


https://hal.archives-ouvertes.fr/hal-00747689
Contributeur : Huu Thai Nguyen <>
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Dernière modification le : mardi 19 mai 2015 - 16:30:41
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Huu Thai Nguyen, Serguei Pergamenchtchikov. Approximate hedging problem with transaction costs in stochastic volatility markets. 47. 2012. <hal-00747689v3>

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