English

Conservative delta hedging under transaction costs

Pricing of Securities 2012-01-13 v2 Probability

Abstract

Explicit robust hedging strategies for convex or concave payoffs under a continuous semimartingale model with uncertainty and small transaction costs are constructed. In an asymptotic sense, the upper and lower bounds of the cumulative volatility enable us to super-hedge convex and concave payoffs respectively. The idea is a combination of Mykland's conservative delta hedging and Leland's enlarging volatility. We use a specific sequence of stopping times as rebalancing dates, which can be superior to equidistant one even when there is no model uncertainty. A central limit theorem for the super-hedging error as the coefficient of linear transaction costs tends to zero is proved. The mean squared error is also studied.

Keywords

Cite

@article{arxiv.1103.2013,
  title  = {Conservative delta hedging under transaction costs},
  author = {Masaaki Fukasawa},
  journal= {arXiv preprint arXiv:1103.2013},
  year   = {2012}
}
R2 v1 2026-06-21T17:37:48.976Z