Mean Square Error and Limit Theorem for the Modified Leland Hedging Strategy with a Constant Transaction Costs Coefficient

Sébastien Darses () and Emmanuel Lépinette ()
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Sébastien Darses: Université Aix-Marseille I, LATP
Emmanuel Lépinette: Université Paris Dauphine, Ceremade

A chapter in Inspired by Finance, 2014, pp 159-199 from Springer

Abstract: Abstract We study the modified Leland’s strategy defined in Lépinette (Math. Finance 22(4):741–752, 2012) for hedging portfolios in the presence of a constant proportional transaction costs coefficient. We prove a limit theorem for the deviation between the real portfolio and the payoff. We identify the rate of convergence and the associated limit distribution. This rate can be improved using the modified strategy and non periodic revision dates.

Keywords: Option pricing; Transaction costs; Leland strategy; 91G20 (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-02069-3_8

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DOI: 10.1007/978-3-319-02069-3_8

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