Non Quadratic Local Risk-Minimization for Hedging Contingent Claims in the Presence of Transaction Costs
This paper is devoted to the study of derivative hedging in incomplete markets when frictions are considered. We extend the general local risk minimisation approach introduced in  to account for liquidity costs, and derive the corresponding optimal strategies in both the discrete- and continuous-time settings. We examplify our method in the case of stochastic volatility and/or jump-diffusion models.
|Date of creation:||06 Dec 2011|
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- Umut Çetin & Robert A. Jarrow & Philip Protter, 2008.
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