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Mean Square Error and Limit Theorem for the Modi fied Leland Hedging Strategy with a Constant Transaction Costs Coefficient

Lépinette, Emmanuel; Darses, Sébastien (2014), Mean Square Error and Limit Theorem for the Modi fied Leland Hedging Strategy with a Constant Transaction Costs Coefficient, in Zariphopoulou, Thaleia; Rutkowski, Marek; Kabanov, Yuri, Inspired by Finance. The Musiela Festschrift, Springer : Berlin, p. 159-199

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Denis dd_leland-Pub.pdf (460.9Kb)
Type
Chapitre d'ouvrage
Date
2014
Book title
Inspired by Finance. The Musiela Festschrift
Book author
Zariphopoulou, Thaleia; Rutkowski, Marek; Kabanov, Yuri
Publisher
Springer
Published in
Berlin
ISBN
978-3-319-02068-6
Pages
159-199
Publication identifier
http://dx.doi.org/10.1007/978-3-319-02069-3_8
Metadata
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Author(s)
Lépinette, Emmanuel

Darses, Sébastien
Abstract (EN)
We study the Leland model for hedging portfolios in the presence of a constant proportional transaction costs coefficient. The modi fied Leland's strategy defi ned in [2], contrarily to the classical one, ensures the asymptotic replication of a large class of payoff . In this setting, we prove a limit theorem for the deviation between the real portfolio and the payoff . As Pergamenshchikov did in the framework of the usual Leland's strategy [11], we identify the rate of convergence and the associated limit distribution. This rate turns out to be improved using the modi fied strategy and non periodic revision dates.
Subjects / Keywords
martingale limit theorem; asymptotic hedging; Leland-Lott strategy; transaction costs
JEL
D23 - Organizational Behavior; Transaction Costs; Property Rights

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