Optimal delta-hedging under transactions costs
UNSPECIFIED. (1997) Optimal delta-hedging under transactions costs. JOURNAL OF ECONOMIC DYNAMICS & CONTROL, 21 (8-9). pp. 1353-1376. ISSN 0165-1889Full text not available from this repository.
This paper examines the problem of delta-hedging portfolios of options under transactions costs by maximising expected utility (or minimising a loss function on the replication error). We extend the work of Hedges and Neuberger (1989) to study the optimal strategy under a general cost function with fixed and proportional costs. A computational procedure for solving this problem is described and we develop an efficient computational method for the case of proportional transaction costs. We examine the nature of the solution close to the expiry date and using simulation we compare the performance of the optimal strategies with other common strategies.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HC Economic History and Conditions|
|Journal or Publication Title:||JOURNAL OF ECONOMIC DYNAMICS & CONTROL|
|Publisher:||ELSEVIER SCIENCE BV|
|Date:||29 June 1997|
|Number of Pages:||24|
|Page Range:||pp. 1353-1376|
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