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  • Descrete-time delta hedging and the Black-Scholes model with transaction costs
    Mastinšek, Miklavž
    The paper deals with the problem of discrete-time delta hedging and discrete-time option valuation by the Black-Scholes model. Since in the Black-Scholes model the hedging is continuous, hedging ... errors appear when applied to discrete trading. The hedging error is considered and a discrete-time adjusted Black-Scholes-Merton equation is derived. By anticipating the time sensitivity of delta the discrete-time delta hedging can be improved and more accurate delta values dependent on the length of the rebalancing intervals can be obtained. As an application the discrete-time trading with transaction costs is considered. Explicit solution of the option valuation problem is given and a closed form delta value for a European call option with transaction costs is obtained.
    Vir: Mathematical methods of operations research. - ISSN 1432-2994 (Vol. 64, iss. 2, 2006, str. [227]-236)
    Vrsta gradiva - članek, sestavni del
    Leto - 2006
    Jezik - angleški
    COBISS.SI-ID - 8939292
    DOI

vir: Mathematical methods of operations research. - ISSN 1432-2994 (Vol. 64, iss. 2, 2006, str. [227]-236)

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