APPROXIMATE HEDGING PROBLEM WITH TRANSACTION COSTS IN STOCHASTIC VOLATILITY MARKETS
APPROXIMATE HEDGING PROBLEM WITH TRANSACTION COSTS IN STOCHASTIC VOLATILITY MARKETS
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. …