Mean square error for the Leland-Lott hedging strategy: convex pay-offs

DOI10.1007/s00780-010-0130-zzbMath1233.91262OpenAlexW3124003469MaRDI QIDQ650775

Emmanuel Denis, Youri M.Kabanov

Publication date: 27 November 2011

Published in: Finance and Stochastics (Search for Journal in Brave)

Full work available at URL: https://doi.org/10.1007/s00780-010-0130-z

zbMATH Keywords

diffusion approximationtransaction costsBlack-Scholes formulaEuropean optionapproximate hedgingLeland-Lott strategymartingale limit theorem

Mathematics Subject Classification ID

Martingales with continuous parameter (60G44) Diffusion processes (60J60) Derivative securities (option pricing, hedging, etc.) (91G20)

Related Items (15)

APPROXIMATE HEDGING PROBLEM WITH TRANSACTION COSTS IN STOCHASTIC VOLATILITY MARKETS ⋮ Asymptotic replication with modified volatility under small transaction costs ⋮ Mean Square Error and Limit Theorem for the Modified Leland Hedging Strategy with a Constant Transaction Costs Coefficient ⋮ Von Neumann–Gale model, market frictions and capital growth ⋮ Hedging in fractional Black-Scholes model with transaction costs ⋮ Risk preference, option pricing and portfolio hedging with proportional transaction costs ⋮ Weak convergence of error processes in discretizations of stochastic integrals and Besov spaces ⋮ Asymptotic arbitrage in large financial markets with friction ⋮ Dynamic programming principle and computable prices in financial market models with transaction costs ⋮ Discretization error of stochastic integrals ⋮ Efficient discretization of stochastic integrals ⋮ CONDITIONAL-MEAN HEDGING UNDER TRANSACTION COSTS IN GAUSSIAN MODELS ⋮ MODIFIED LELAND’S STRATEGY FOR A CONSTANT TRANSACTION COSTS RATE ⋮ Diffusion Equations: Convergence of the Functional Scheme Derived from the Binomial Tree with Local Volatility for Non Smooth Payoff Functions ⋮ Approximate hedging for nonlinear transaction costs on the volume of traded assets

Cites Work

• Weak convergence of error processes in discretizations of stochastic integrals and Besov spaces
• On Leland's strategy of option pricing with transactions costs
• Limit theorem for Leland's strategy
• Leland's Approach to Option Pricing: The Evolution of a Discontinuity
• EVALUATING HEDGING ERRORS: AN ASYMPTOTIC APPROACH
• MINIMIZING TRANSACTION COSTS OF OPTION HEDGING STRATEGIES
• Quantitative approximation of certain stochastic integrals
• Discrete time hedging errors for options with irregular payoffs
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