On Leland's strategy of option pricing with transactions costs

Yuri M. Kabanov and Mher M. Safarian (*),
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Yuri M. Kabanov: Central Economics and Mathematics Institute of the Russian Academy of Sciences
Mher M. Safarian (*),: Humboldt University, Unter den Linden, 6, D-10117 Berlin, Germany
Authors registered in the RePEc Author Service: Юрий Михайлович Кабанов

Finance and Stochastics, 1997, vol. 1, issue 3, 239-250

Abstract: We compute the limiting hedging error of the Leland strategy for the approximate pricing of the European call option in a market with transactions costs. It is not equal to zero in the case when the level of transactions costs is a constant, in contradiction with the claim in Leland (1985).

Keywords: Transactions costs; asymptotic hedging; call option; Black-Scholes formula (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 1997
Note: received: February 1996; final version received: October 1996
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Citations: View citations in EconPapers (25)

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