Standard delta hedging fails to exactly replicate a European call option in the presence of transaction costs. We study a pricing and hedging model similar to the delta hedging strategy with an endogenous volatility parameter for the calculation of delta over time. The endogenous volatility...

This paper presents a method for solving multiperiod investment models with downside risk control characterized by the portfolio's worst outcome. The stochastic programming problem is decomposed into two subproblems: a nonlinear optimization model identifing the optimal terminal wealth and a...