×

Limit theorem on option replication cost with transaction costs. (English) Zbl 0834.90049

Summary: Option replication in a discrete-time framework with transaction costs and its limit is discussed. First, the notion of an efficient strategy is introduced, and then it is shown that an efficient strategy is the best strategy if it exists. It is also shown that the limit of the cost for option replication is given by a certain formula when the unit of time \(\Delta t\) tends to zero and the transaction costs tend to zero on the order of \(\sqrt{\Delta t}\).

MSC:

91G10 Portfolio theory
60F99 Limit theorems in probability theory
PDFBibTeX XMLCite
Full Text: DOI