Hedging in Jump Diffusion Model with Transaction Costs
Mathematical Finance
2024-08-21 v1 Probability
Portfolio Management
Abstract
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.
Keywords
Cite
@article{arxiv.2408.10785,
title = {Hedging in Jump Diffusion Model with Transaction Costs},
author = {Hamidreza Maleki Almani and Foad Shokrollahi and Tommi Sottinen},
journal= {arXiv preprint arXiv:2408.10785},
year = {2024}
}