The DOI matches its Crossref record; 5 of the 5 references it cites were found in a registry or an index.
Option Pricing and Replication with Transactions Costs
Abstract
Transactions costs invalidate the Black‐Scholes arbitrage argument for option pricing, since continuous revision implies infinite trading. Discrete revision using Black‐Scholes deltas generates errors which are correlated with the market, and do not approach zero with more frequent revision when transactions costs are included. This paper develops a modified option replicating strategy which depends on the size of transactions costs and the frequency of revision. Hedging errors are uncorrelated with the market and approach zero with more frequent revision. The technique permits calculation of the transactions costs of option replication and provides bounds on option prices.
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Citations
Cites
The pricing of options and corporate liabilities
Black, F., & Scholes, M. (1973) · Journal of Political Economy · doi:10.1086/260062 · Cited by 29,074
An Introduction to Probability Theory and its Applications.
Kingman, J. F. C., & Feller, W. (1972) · Journal of the Royal Statistical Society. Series A (General) · doi:10.2307/2344620 · Cited by 4,938
The Valuation of Uncertain Income Streams and the Pricing of Options
Rubinstein, M. (1976) · The Bell Journal of Economics · doi:10.2307/3003264 · Cited by 1,618
Portfolio selection with transactions costs
Magill, M. J. P., & Constantinides, G. M. (1976) · Journal of Economic Theory · doi:10.1016/0022-0531(76)90018-1 · Cited by 431
Discretely adjusted option hedges
Boyle, P. P., & Emanuel, D. (1980) · Journal of Financial Economics · doi:10.1016/0304-405x(80)90003-3 · Cited by 194
Cited by
An Engine, Not a Camera: How Financial Models Shape Markets
MacKenzie, D. (2006) · doi:10.7551/mitpress/9780262134606.001.0001 · Cited by 1,766
Portfolio Selection with Transaction Costs
Davis, M. H. A., & Norman, A. R. (1990) · Mathematics of Operations Research · doi:10.1287/moor.15.4.676 · Cited by 1,311
Arbitrage Theory in Continuous Time
Björk, T. (2004) · doi:10.1093/0199271267.001.0001 · Cited by 940
HEDGING AND PORTFOLIO OPTIMIZATION UNDER TRANSACTION COSTS: A MARTINGALE APPROACH12
Cvitanić, J., & Karatzas, I. (1996) · Mathematical Finance · doi:10.1111/j.1467-9965.1996.tb00075.x · Cited by 317
Beck, C., E, W., & Jentzen, A. (2019) · Journal of Nonlinear Science · doi:10.1007/s00332-018-9525-3 · Cited by 308
Metadata
- Authors
- LELAND, H. E.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 1985-12
- Volume
- 40
- Issue
- 5
- Pages
- 1283-1301
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2161836471
- Cited by
- 912
- References
- 5
- FWCI
- 6.71
- Type
- journal article
- Language
- en
- Open access
- closed
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