On Leland's strategy of option pricing with transactions costs
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چکیده
منابع مشابه
On Leland's strategy of option pricing with transactions costs
The limiting hedging error of Leland's strategy for the approximate pricing of a European call option is calculated in a market with transactions costs. It is not equal to zero when the level of transactions costs is a constant in a contradiction with the claim in ?]. 1. In his paper ?] devoted to the problem of option pricing in the presence of transactions costs Heyne Leland suggested a tradi...
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proportional transaction costs using the utility-maximization framework of Davis (1997). This approach allows option prices to be computed by solving the investor’s basic portfolio selection problem without insertion of the option payoff into the terminal value function. The properties of the value function can then be used to drastically reduce the number of operations needed to locate the bou...
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Option replication is studied in a discrete-time framework with proportional transaction costs. The model represents an extension of the Cox-RossRubinstein binomial option-pricing model to cover the case of proportional transaction costs for one risky asset with different interest rates on bank credit and deposit. Contingent claims are supposed to be 2-dimensional random variables. Explicit for...
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Nonzero transaction costs invalidate the Black-Scholes (1973) arbitrage argument based on continuous trading. Leland (1985) developed a hedging strategy which modifies the Black-Scholes hedging strategy with a volatility adjusted by the length of the rebalance interval and the rate of the proportional transaction cost. Leland claimed that the exact hedge could be achieved in the limit as the le...
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ژورنال
عنوان ژورنال: Finance and Stochastics
سال: 1997
ISSN: 0949-2984,1432-1122
DOI: 10.1007/s007800050023