Mean Square Error and Limit Theorem for the Modi fied Leland Hedging Strategy with a Constant Transaction Costs Coefficient
Lépinette, Emmanuel; Darses, Sébastien (2014), Mean Square Error and Limit Theorem for the Modi fied Leland Hedging Strategy with a Constant Transaction Costs Coefficient, in Zariphopoulou, Thaleia; Rutkowski, Marek; Kabanov, Yuri, Inspired by Finance. The Musiela Festschrift, Springer : Berlin, p. 159-199
Book titleInspired by Finance. The Musiela Festschrift
Book authorZariphopoulou, Thaleia; Rutkowski, Marek; Kabanov, Yuri
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Abstract (EN)We study the Leland model for hedging portfolios in the presence of a constant proportional transaction costs coefficient. The modi fied Leland's strategy defi ned in , contrarily to the classical one, ensures the asymptotic replication of a large class of payoff . In this setting, we prove a limit theorem for the deviation between the real portfolio and the payoff . As Pergamenshchikov did in the framework of the usual Leland's strategy , we identify the rate of convergence and the associated limit distribution. This rate turns out to be improved using the modi fied strategy and non periodic revision dates.
Subjects / Keywordsmartingale limit theorem; asymptotic hedging; Leland-Lott strategy; transaction costs
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