Hedging of the European option in discrete time under proportional transaction costs
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In the paper hedging of the European option in a discrete time financial market with proportional transaction costs is studied. It is shown that for a certain class of options the set of portfolios which allow to hedge an option in a discrete time model with a bounded set of possible changes in a stock price is the same as the set of such portfolios, under assumption that the stock price evolution is given by a suitable CRR model.
KeywordsEuropean option Self-financing strategy Hedging Transaction costs
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