Pricing and Hedging in the Presence of Transaction Costs Under Local Risk Minimisation

The paper considers the continuous time pricing and hedging of European options in the presence of small transaction costs and frequent trading under local risk minimisation. The approach yields mean-self-financing strategies. The resulting dynamical hedges adapt the trading frequency in dependence on actual asset price and time to maturity. Explicit asymptotic expressions for prices and hedging strategies are derived.

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Year of publication:	1999-08-01
Authors:	Hoek, John van der ; Platen, Eckhard
Institutions:	Finance Discipline Group, Business School
Subject:	option pricing \| transaction costs \| local risk minimisation

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Series:	Research Paper Series.
Type of publication:	Book / Working Paper
Notes:	Number 14
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004984510