IDEAS home Printed from https://ideas.repec.org/a/taf/quantf/v8y2008i4p405-413.html
   My bibliography  Save this article

A new computational tool for analysing dynamic hedging under transaction costs

Author

Listed:
  • James Primbs
  • Yuji Yamada

Abstract

This paper highlights a framework for analysing dynamic hedging strategies under transaction costs. First, self-financing portfolio dynamics under transaction costs are modelled as being portfolio affine. An algorithm for computing the moments of the hedging error on a lattice under portfolio affine dynamics is then presented. In a number of circumstances, this provides an efficient approach to analysing the performance of hedging strategies under transaction costs through moments. As an example, this approach is applied to the hedging of a European call option with a Black-Scholes delta hedge and Leland's adjustment for transaction costs. Results are presented that demonstrate the range of analysis possible within the presented framework.

Suggested Citation

  • James Primbs & Yuji Yamada, 2008. "A new computational tool for analysing dynamic hedging under transaction costs," Quantitative Finance, Taylor & Francis Journals, vol. 8(4), pages 405-413.
  • Handle: RePEc:taf:quantf:v:8:y:2008:i:4:p:405-413
    DOI: 10.1080/14697680701402941
    as

    Download full text from publisher

    File URL: http://www.tandfonline.com/doi/abs/10.1080/14697680701402941
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/14697680701402941?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:8:y:2008:i:4:p:405-413. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RQUF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.