Option replication with transaction costs: general diffusion limits

DOI10.1214/AOAP/1028903447MaRDI QIDQ1296601zbMATH OpenOpenAlexFDO

Authors Hyungsok Ahn, Mohit Dayal, E. R. Grannan, G. H. Swindle

Publication date 23 November 1999

Published in The Annals of Applied Probability (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1214/aoap/1028903447

zbMATH Keywords

transaction costsdiffusion limitshedging strategiesreplication errorsstock price strategies

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Martingales with continuous parameter (60G44) Applications of stochastic analysis (to PDEs, etc.) (60H30)

Recommendations

• Asymptotic replication with modified volatility under small transaction costs
• Limit theorem on option replication cost with transaction costs
• MINIMIZING TRANSACTION COSTS OF OPTION HEDGING STRATEGIES
• Approximate hedging problem with transaction costs in stochastic volatility markets
• Small transaction cost asymptotics and dynamic hedging

Cites work

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• DERIVATIVE ASSET PRICING WITH TRANSACTION COSTS¹
• European Option Pricing with Transaction Costs
• MINIMIZING TRANSACTION COSTS OF OPTION HEDGING STRATEGIES
• Optimum consumption and portfolio rules in a continuous-time model
• Option pricing: A simplified approach
• Portfolio Selection with Transaction Costs
• The pricing of options and corporate liabilities

Cited in

(13)

• A TRANSACTION COST CONVERGENCE RESULT FOR GENERAL HEDGING STRATEGIES
• An endogenous volatility approach to pricing and hedging call options with transaction costs
• Structuring an option to facilitate replication with transaction costs
• Approximate hedging of contingent claims under transaction costs for general pay-offs
• EVALUATING HEDGING ERRORS: AN ASYMPTOTIC APPROACH
• Approximate Hedging with Constant Proportional Transaction Costs in Financial Markets with Jumps
• A note on convergence of an approximate hedging portfolio with liquidity risk
• Asymptotic replication with modified volatility under small transaction costs
• Hedging Problem for Asian Call Options with Transaction Costs
• Limit theorem on option replication cost with transaction costs
• Efficient option replication in the presence of transactions costs
• Approximate hedging problem with transaction costs in stochastic volatility markets
• Limit theorem for Leland's strategy

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