Abstract.
We compute the limiting hedging error of the Leland strategy for the approximate pricing of the European call option in a market with transactions costs. It is not equal to zero in the case when the level of transactions costs is a constant, in contradiction with the claim in Leland (1985).
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Kabanov, Y., Safarian, M. On Leland's strategy of option pricing with transactions costs. Finance Stochast 1, 239–250 (1997). https://doi.org/10.1007/s007800050023
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DOI: https://doi.org/10.1007/s007800050023