In this paper, a European-type contingent claim pricing problem withtransaction costs is considered by a mean-variance hedging argument. The investor has to paytransaction costs which are proportional to the amount of...In this paper, a European-type contingent claim pricing problem withtransaction costs is considered by a mean-variance hedging argument. The investor has to paytransaction costs which are proportional to the amount of stock transacted. The writer's hedgingobject is to minimize the hedging risk, defined as the variance of hedging error at expiration, witha proper expected excess return level. At first, we consider the mean-variance hedging problem: forinitial hedging wealth f, maximizing the excess expected return under the minimum hedging risklevel V_0. On the other hand, we consider a mean-variance portfolio problem, which is to maximizethe expected return with initial wealth 0 under the same risk level V_0. The minimum initial hedgingwealth f, which can offset the difference of the maximum expected return of these two problems, isthe writer's price.展开更多
文摘In this paper, a European-type contingent claim pricing problem withtransaction costs is considered by a mean-variance hedging argument. The investor has to paytransaction costs which are proportional to the amount of stock transacted. The writer's hedgingobject is to minimize the hedging risk, defined as the variance of hedging error at expiration, witha proper expected excess return level. At first, we consider the mean-variance hedging problem: forinitial hedging wealth f, maximizing the excess expected return under the minimum hedging risklevel V_0. On the other hand, we consider a mean-variance portfolio problem, which is to maximizethe expected return with initial wealth 0 under the same risk level V_0. The minimum initial hedgingwealth f, which can offset the difference of the maximum expected return of these two problems, isthe writer's price.
