MacLean, Leonard C.; Zhao, Yonggan; Ziemba, William T. - In: Quantitative Finance 13 (2011) 5, pp. 699-712
Standard delta hedging fails to exactly replicate a European call option in the presence of transaction costs. We study a pricing and hedging model similar to the delta hedging strategy with an endogenous volatility parameter for the calculation of delta over time. The endogenous volatility...