On Leland's strategy of option pricing with transactions costs
AbstractWe compute the limiting hedging error of the Leland strategy for the approximate pricing of the European call option in a market with transactions costs. It is not equal to zero in the case when the level of transactions costs is a constant, in contradiction with the claim in Leland (1985).
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Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 1 (1997)
Issue (Month): 3 ()
Note: received: February 1996; final version received: October 1996
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Web page: http://www.springerlink.com/content/101164/
Other versions of this item:
- Y. M. Kabanov & M. Safarian, 1995. "On Leland's Strategy of Option Pricing with Transaction Costs," SFB 373 Discussion Papers 1995,65, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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- Joel Vanden, 2006. "Exact Superreplication Strategies for a Class of Derivative Assets," Applied Mathematical Finance, Taylor & Francis Journals, vol. 13(1), pages 61-87.
- Erindi Allaj, 2013. "Arbitrage pricing theory under transaction costs and application to the Tobin tax," Papers 1310.1882, arXiv.org, revised Oct 2013.
- Ostermark, Ralf, 1998. "Call option pricing and replication under economic friction," European Journal of Operational Research, Elsevier, vol. 108(1), pages 184-195, July.
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"Static Hedging of Multivariate Derivatives by Simulation,"
0311013, EconWPA, revised 04 Dec 2003.
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- C. Atkinson & C. A. Alexandropoulos, 2006. "Pricing a European Basket Option in the Presence of Proportional Transaction Costs," Applied Mathematical Finance, Taylor & Francis Journals, vol. 13(3), pages 191-214.
- Huu Thai Nguyen & Serguei Pergamenchtchikov, 2012. "Approximate hedging problem with transaction costs in stochastic volatility markets," Working Papers hal-00747689, HAL.
- Ehsan Azmoodeh, 2010. "On the fractional Black-Scholes market with transaction costs," Papers 1005.0211, arXiv.org.
- Lépinette-Denis, Emmanuel & Kabanov, Yuri, 2010.
"Mean square error for the Leland-Lott hedging strategy: convex pay-offs,"
Economics Papers from University Paris Dauphine
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- Emmanuel Denis & Yuri Kabanov, 2010. "Mean square error for the Leland–Lott hedging strategy: convex pay-offs," Finance and Stochastics, Springer, vol. 14(4), pages 625-667, December.
- Huu Thai Nguyen & Serguei Pergamenchtchikov, 2012. "Approximate hedging problem with transaction costs in stochastic volatility markets," Working Papers hal-00808608, HAL.
- Sebastien Darses & Emmanuel Denis, 2010. "Limit Theorem for a Modified Leland Hedging Strategy under Constant Transaction Costs rate," Working Papers hal-00467704, HAL.
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