Dynamic Hedging Portfolios for Derivative Securities in the Presence of Large Transaction Costs

@inproceedings{Avellaneda1994DynamicHP,
  title={Dynamic Hedging Portfolios for Derivative Securities in the Presence of Large Transaction Costs},
  author={Marco Avellaneda and A. Parr},
  year={1994}
}
We introduce a new class of strategies for hedging derivative securities in the presence of transaction costs assuming lognormal continuous time prices for the underlying asset We do not assume necessarily that the payo is convex as in Leland or that transaction costs are small compared to the price changes between portfolio adjustments as in Hoggard Whalley and Wilmott The type of hedging strategy to be used depends on the value of the Leland number A q k p t where k is the round trip… CONTINUE READING

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