March 2015
Intermediate to advanced
362 pages
8h 20m
English
Content preview from Mastering R for Quantitative FinanceBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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Hedging in the presence of transaction costs
As we shown earlier, increasing the number of portfolio adjustments leads to a decrease in the volatility of the hedging cost. As Δt approaches 0, the cost of hedging approximates the option price derived from the BS formula. Until now, we have disregarded the transaction costs, but here, we remove this assumption and analyze the effects of transaction costs on option hedging. As rebalancing becomes more frequent, transaction costs increase the cost of hedging, but at the same time, shorter rebalancing periods reduce the volatility of the hedging cost. Hence, it is worth examining this trade-off in more detail, and based on this, defining the optimal rebalancing strategy. An absolute (fixed for each ...
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I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.