The authors would also like the acknowledge discussions with Nadima El-Hassan (UTS) and the research assistance of Christina Nikitopoulos.
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 replica-tion error). We extend the work of Hodges and Neuberger (1989) to study the optimal strategy under a general cost function with fixed and proportional costs. A computational procedure… (More)
The authors would like to thank Martin Cooper (Tokai Bank Europe), Stewart Hodges (FORC) and Harry Tsivanidis (SBC Warburgs) for many stimulating discussions.
The stochastic or random nature of commodity prices plays a central role in models for valuing financial contingent claims on commodities. In this paper, by enhancing a multi factor framework which is consistent not only with the market observable forward price curve but also the volatilities and correlations of forward prices, we propose a two factor… (More)