In a market with transaction costs the option hedging is costly. The idea presented by Leland (1985) was to include the expected transaction costs in the cost o

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

In the presence of transaction costs the perfect option replication is impossible which invalidates the celebrated Black and Scholes (1973) model. In this chapt