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measure, describing the stochastic dynamics of the state of the market, and an equivalent martingale measure determining … prices of contingent claims. The relation between equivalent martingale measure, state prices, market price of risk and the …
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Leland's approach to the hedging of derivatives under proportional transaction costs is based on an approximate replication of the European-type contingent claim VT using the classical Black Scholes formulae with a suitably enlarged volatility. The formal mathematical framework is a scheme of...
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