Approximate hedging problem with transaction costs in stochastic volatility markets

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DOI Доступ к ресурсу на сайте издателя			10.1111/mafi.12094

Title: Approximate hedging problem with transaction costs in stochastic volatility markets
Creator: Nguen, Thai Huu
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Pergamenshchikov, Serguei M.
Date: 2017
DOI: 10.1111/mafi.12094
Description: This paper studies the problem of option replication in general stochastic volatility markets with transaction costs, using a new specification for the volatility adjustment in Leland's algorithm. We prove several limit theorems for the normalized replication error of Leland's strategy, as well as that of the strategy suggested by Lépinette. The asymptotic results obtained not only generalize the existing results, but also enable us to fix the underhedging property pointed out by Kabanov and Safarian. We also discuss possible methods to improve the convergence rate and to reduce the option price inclusive of transaction costs.