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Mean Square Error and Limit Theorem for the Modified Leland Hedging Strategy with a Constant Transaction Costs Coefficient

In: Inspired by Finance

Author

Listed:
  • Sébastien Darses

    (Université Aix-Marseille I, LATP)

  • Emmanuel Lépinette

    (Université Paris Dauphine, Ceremade)

Abstract

We study the modified Leland’s strategy defined in Lépinette (Math. Finance 22(4):741–752, 2012) for hedging portfolios in the presence of a constant proportional transaction costs coefficient. We prove a limit theorem for the deviation between the real portfolio and the payoff. We identify the rate of convergence and the associated limit distribution. This rate can be improved using the modified strategy and non periodic revision dates.

Suggested Citation

  • Sébastien Darses & Emmanuel Lépinette, 2014. "Mean Square Error and Limit Theorem for the Modified Leland Hedging Strategy with a Constant Transaction Costs Coefficient," Springer Books, in: Yuri Kabanov & Marek Rutkowski & Thaleia Zariphopoulou (ed.), Inspired by Finance, edition 127, pages 159-199, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-02069-3_8
    DOI: 10.1007/978-3-319-02069-3_8
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