Wystup, Uwe; Schmock, Uwe; Shreve, Steven E. - In: Finance and Stochastics 6 (2002) 2, pp. 143-172
Options with discontinuous payoffs are generally traded above their theoretical Black-Scholes prices because of the hedging difficulties created by their large delta and gamma values. A theoretical method for pricing these options is to constrain the hedging portfolio and incorporate this...