Mean square error for the Leland-Lott hedging strategy: convex pay-offs

DOI10.1007/S00780-010-0130-ZzbMATH Open1233.91262OpenAlexW3124003469MaRDI QIDQ650775FDOQ650775

Authors Emmanuel Denis, Yuri Kabanov

Publication date 27 November 2011

Published in Finance and Stochastics (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s00780-010-0130-z

zbMATH Keywords

diffusion approximationtransaction costsEuropean optionBlack-Scholes formulaapproximate hedgingLeland-Lott strategymartingale limit theorem

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Diffusion processes (60J60) Martingales with continuous parameter (60G44)

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Cites work

• scientific article; zbMATH DE number 4034749 (Why is no real title available?)
• Discrete time hedging errors for options with irregular payoffs
• EVALUATING HEDGING ERRORS: AN ASYMPTOTIC APPROACH
• Leland's approach to option pricing: The evolution of a discontinuity
• Limit theorem for Leland's strategy
• MINIMIZING TRANSACTION COSTS OF OPTION HEDGING STRATEGIES
• Mean square error for the Leland-Lott hedging strategy
• On Leland's strategy of option pricing with transactions costs
• Quantitative approximation of certain stochastic integrals
• Stochastic control methods in asset pricing.
• Weak convergence of error processes in discretizations of stochastic integrals and Besov spaces

Cited in

(24)

• Asymptotic arbitrage in large financial markets with friction
• scientific article; zbMATH DE number 5657307 (Why is no real title available?)
• Efficient discretization of stochastic integrals
• Approximate hedging of contingent claims under transaction costs for general pay-offs
• Limit theorem for Leland's strategy
• Mean square error and limit theorem for the modified Leland hedging strategy with a constant transaction costs coefficient
• Weak convergence of error processes in discretizations of stochastic integrals and Besov spaces
• Discretization error of stochastic integrals
• Diffusion equations: convergence of the functional scheme derived from the binomial tree with local volatility for non smooth payoff functions
• Asymptotic replication with modified volatility under small transaction costs
• Approximate hedging for nonlinear transaction costs on the volume of traded assets
• CONDITIONAL-MEAN HEDGING UNDER TRANSACTION COSTS IN GAUSSIAN MODELS
• On parabolic equations with gauge function term and applications to the multidimensional Leland equation
• Approximate hedging problem with transaction costs in stochastic volatility markets
• Von Neumann–Gale model, market frictions and capital growth
• Mean square error for the Leland-Lott hedging strategy
• Modified Leland's strategy for a constant transaction costs rate
• Dynamic programming principle and computable prices in financial market models with transaction costs
• Dynamic hedging portfolios for derivative securities in the presence of large transaction costs
• Leland's approach to option pricing: The evolution of a discontinuity
• Hedging of option portfolios and options on several assets with transaction costs and nonlinear partial differential equations
• VALUATION AND HEDGING OF OPTIONS WITH GENERAL PAYOFF UNDER TRANSACTIONS COSTS
• Risk preference, option pricing and portfolio hedging with proportional transaction costs
• Hedging in fractional Black-Scholes model with transaction costs

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