Approximate hedging with proportional transaction costs in stochastic volatility models with jumps

Huu Thai Nguyen () and Serguei Pergamenchtchikov
Additional contact information
Huu Thai Nguyen: LMRS - Laboratoire de Mathématiques Raphaël Salem - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - CNRS - Centre National de la Recherche Scientifique
Serguei Pergamenchtchikov: LMRS - Laboratoire de Mathématiques Raphaël Salem - UNIROUEN - Université de Rouen Normandie - NU - Normandie Université - CNRS - Centre National de la Recherche Scientifique

Working Papers from HAL

Abstract: We extend the resutls for the problem of option replication under proportional transaction costs in \cite{Nguyen} to more general frameworks where stochastic volatility and jumps are combined to capture market's important features. In particular, we study the hedging error due to discrete readjustments by applying the Leland adjusting volatility principle to compensate transaction costs. In such contexts, jumps risk is approximately eliminated and the results established in \cite{Nguyen} are recovered.

Keywords: transaction costs. jump models; stochastic volatility; approximate hedging; theorem limit; super-hedging; quantile hedging (search for similar items in EconPapers)
Date: 2014-04-15
New Economics Papers: this item is included in nep-ore and nep-rmg
Note: View the original document on HAL open archive server: https://hal.science/hal-00979199
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-00979199/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-00979199

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().