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Teoriya Veroyatnostei i ee Primeneniya, 2020, Volume 65, Issue 2, Pages 281–311
DOI: https://doi.org/10.4213/tvp5352
(Mi tvp5352)
 

This article is cited in 3 scientific papers (total in 3 papers)

Approximate hedging with constant proportional transaction costs in financial markets with jumps

T. Nguyenab, S. M. Pergamenshchikovcd

a Ульмский университет, Германия
b University of Economics Ho Chi Minh City, Vietnam
c Laboratoire de Mathematiques Raphael Salem
d Tomsk State University, Faculty of Mechanics and Mathematics
Full-text PDF (853 kB) Citations (3)
References:
Abstract: We study a problem of option replication under constant proportional transaction costs in models where stochastic volatility and jumps are combined to capture the market's important features. Assuming some mild condition on the jump size distribution, we show that transaction costs can be approximately compensated by applying the Leland adjusting volatility principle and the asymptotic property of the hedging error due to discrete readjustments. In particular, the jump risk can be approximately eliminated, and the results established in continuous diffusion models are recovered. The study also confirms that, for the case of constant trading cost rate, the approximate results established by Kabanov and Safarian [Finance Stoch., 1 (1997), pp. 239–250] and by Pergamenschikov [Ann. Appl.Probab., 13 (2003), pp. 1099–1118] are still valid in jump-diffusion models with deterministic volatility.
Keywords: transaction costs, Leland strategy, jump models, stochastic volatility, approximate hedging, limit theorem, super-hedging, quantile hedging.
Received: 07.10.2018
Accepted: 20.12.2019
English version:
Theory of Probability and its Applications, 2020, Volume 65, Issue 2, Pages 224–248
DOI: https://doi.org/10.1137/S0040585X97T989921
Bibliographic databases:
Document Type: Article
Language: Russian
Citation: T. Nguyen, S. M. Pergamenshchikov, “Approximate hedging with constant proportional transaction costs in financial markets with jumps”, Teor. Veroyatnost. i Primenen., 65:2 (2020), 281–311; Theory Probab. Appl., 65:2 (2020), 224–248
Citation in format AMSBIB
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  • https://www.mathnet.ru/eng/tvp5352
  • https://doi.org/10.4213/tvp5352
  • https://www.mathnet.ru/eng/tvp/v65/i2/p281
  • This publication is cited in the following 3 articles:
    Citing articles in Google Scholar: Russian citations, English citations
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