One of the most successful approaches to option hedging with transaction costs is the utility-based approach, pioneered by Hodges and Neuberger [Rev. Futures Markets, 1989, 8, 222-239]. Judging against the best possible trade-off between the risk and the costs of a hedging strategy, this...

Considerable theoretical work has been devoted to the problem of option pricing and hedging with transaction costs. A variety of methods have been suggested and are currently being used for dynamic hedging of options in the presence of transaction costs. However, very little was done on the...