Communications in Mathematical Finance

On the fractional Black-Scholes market with transaction costs

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  • Abstract

    We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance n^{-1} between trading times. We derive a non trivial hedging error for a class of European options with convex payoff in the case when the transaction costs coefficients decrease as n^{-(1-H)}. We study the expected hedging error and asymptotic behavior of the hedge as Hurst parameter H approaches 1/2.

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