APPROXIMATE HEDGING IN A LOCAL VOLATILITY MODEL WITH PROPORTIONAL TRANSACTION COSTS

Local volatility models are popular because they can be simply calibrated to the market of European options. We extend the results of [4], [3] for such models, i.e. we propose a modi ed Leland method which allows us to approximately replicate a European contingent claim when the market is under proportional transaction costs.

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Year of publication:	2014
Authors:	Quoc, Tuan Tran ; Lépinette-Denis, Emmanuel
Institutions:	Université Paris-Dauphine (Paris IX)
Subject:	transaction costs \| Leland strategy \| approximate hedging \| Black-Scholes formula

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Series:	Economics Papers from University Paris Dauphine.
Type of publication:	Book / Working Paper
Notes:	Published in Applied Mathematical Finance, 2014, Vol. 21, no. 4. pp. 313-341.Length: 28 pages
Classification:	D23 - Organizational Behavior; Transaction Costs; Property Rights
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010799310