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On Leland's strategy of option pricing with transactions costs

  • Yuri M. Kabanov

    (Central Economics and Mathematics Institute of the Russian Academy of Sciences)

  • (*), Mher M. Safarian

    (Humboldt University, Unter den Linden, 6, D-10117 Berlin, Germany)

We 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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Article provided by Springer in its journal Finance and Stochastics.

Volume (Year): 1 (1997)
Issue (Month): 3 ()
Pages: 239-250

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Handle: RePEc:spr:finsto:v:1:y:1997:i:3:p:239-250
Note: received: February 1996; final version received: October 1996
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