Approximate hedging for nonlinear transaction costs on the volume of traded assets (Q2516769)

The paper is devoted to the replication of a convex contingent claim in a financial market with frictions, due to deterministic order books or regulatory constraints. The main innovation of the paper is the introduction of a ``Leland-type'' strategy for non-vanishing (nonlinear) transaction costs on the volume of traded shares, instead of the commonly considered traded amount of money. This was accomplished by using the Malliavin calculus representation of the Greeks.