Hedging in Jump Diffusion Model with Transaction Costs
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arXiv
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| Main Authors: | , , |
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| Format: | Preprint |
| Published: |
2024
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| _version_ | 1866909291737251840 |
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| author | Almani, Hamidreza Maleki Shokrollahi, Foad Sottinen, Tommi |
| author_facet | Almani, Hamidreza Maleki Shokrollahi, Foad Sottinen, Tommi |
| contents | We consider the jump-diffusion risky asset model and study its conditional prediction laws. Next, we explain the conditional least square hedging strategy and calculate its closed form for the jump-diffusion model, considering the Black-Scholes framework with interpretations related to investor priorities and transaction costs. We investigate the explicit form of this result for the particular case of the European call option under transaction costs and formulate recursive hedging strategies. Finally, we present a decision tree, table of values, and figures to support our results. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2408_10785 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | Hedging in Jump Diffusion Model with Transaction Costs Almani, Hamidreza Maleki Shokrollahi, Foad Sottinen, Tommi Mathematical Finance Probability Portfolio Management 91G10, 91G20, 91G80, 60G51, 60J60, 60J65, 60J70, 60J76 We consider the jump-diffusion risky asset model and study its conditional prediction laws. Next, we explain the conditional least square hedging strategy and calculate its closed form for the jump-diffusion model, considering the Black-Scholes framework with interpretations related to investor priorities and transaction costs. We investigate the explicit form of this result for the particular case of the European call option under transaction costs and formulate recursive hedging strategies. Finally, we present a decision tree, table of values, and figures to support our results. |
| title | Hedging in Jump Diffusion Model with Transaction Costs |
| topic | Mathematical Finance Probability Portfolio Management 91G10, 91G20, 91G80, 60G51, 60J60, 60J65, 60J70, 60J76 |
| url | https://arxiv.org/abs/2408.10785 |