{
  "annotation_id": "ad672900-ed2b-436b-85ed-f387f6448780",
  "date_created": "2026-03-02T18:01:00.587000Z",
  "date_modified": "2026-03-02T18:01:00.587000Z",
  "file_hash": "d994c53efd64cc95aa69f3f953fcd780745357aed775dc296490cd29d41c63e4",
  "private": false,
  "record": {
    "abstract": "We investigate the optimal strategy over a finite time horizon for a\nportfolio of stock and bond and a derivative in an multiplicative Markovian\nmarket model with transaction costs (friction). The optimization problem is\nsolved by a Hamilton-Bellman-Jacobi equation, which by the verification theorem\nhas well-behaved solutions if certain conditions on a potential are satisfied.\nIn the case at hand, these conditions simply imply arbitrage-free\n(\"Black-Scholes\") pricing of the derivative. While pricing is hence not changed\nby friction allow a portfolio to fluctuate around a delta hedge. In the limit\nof weak friction, we determine the optimal control to essentially be of two\nparts: a strong control, which tries to bring the stock-and-derivative\nportfolio towards a Black-Scholes delta hedge; and a weak control, which moves\nthe portfolio by adding or subtracting a Black-Scholes hedge. For simplicity we\nassume growth-optimal investment criteria and quadratic friction.",
    "arxiv_id": "physics/0509150",
    "authors": [
      "Erik Aurell",
      "Paolo Muratore-Ginanneschi"
    ],
    "categories": [
      "physics.soc-ph",
      "q-fin.PR"
    ],
    "doi": "10.1142/S0219024906003901",
    "journal_ref": "IJTAF Vol 9, No 7 (2006), 1051-1070",
    "title": "Optimal hedging of Derivatives with transaction costs",
    "url": "https://arxiv.org/abs/physics/0509150"
  },
  "schema_id": "dorsal/arxiv",
  "source": {
    "execution_id": "bd261fce-01fe-4144-9a4f-3a8b37239c0a",
    "id": "arXiv Dataset IDs",
    "type": "Model",
    "variant": "snapshot-2026-03-01",
    "version": "0.1.0"
  },
  "user_id": 1000002
}