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Hedging options including transaction costs in incomplete markets

Safarian, Mher

In this paper we study a hedging problem for European options taking into account the presence of transaction costs. In incomplete markets, i.e. markets without classical restriction, there exists a unique martingale measure. Our approach is based on the Föllmer-Schweizer-Sondermann concept of risk minimizing. In discret time Markov market mo del we construct a risk minimizing strategy by backwards iteration. The strategy gives a closed-form formula. A continuous time market mo del using martingale price pro cess shows the existence of a risk minimizing hedging strategy

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DOI: 10.5445/IR/1000040413
Cover der Publikation
Zugehörige Institution(en) am KIT Institut für Volkswirtschaftslehre (ECON)
Publikationstyp Forschungsbericht/Preprint
Publikationsjahr 2014
Sprache Englisch
Identifikator ISSN: 2190-9806
KITopen-ID: 1000040413
Verlag KIT, Karlsruhe
Serie Working paper series in economics ; 56
Schlagwörter hedging of options, incomplete markets, transaction costs, risk minimization, mean-self strategies
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