Preprint1995

On Leland's Strategy of Option Pricing with Transaction Costs

25 citations0/0 files storedRePEc: Research Papers in Economics

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Stochastic processes and financial applications Financial Markets and Investment Strategies Economic theories and models

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). (This abstract was borrowed from another version of this item.)

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2001Frequent Hedging under Transaction Costs and a Nonlinear Fokker--Planck PDE

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