When Hedging Changes the Payoff: Option Replication with Price Impact and Execution Costs

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Highly relevant for quantitative traders dealing with large positions or illiquid markets. It provides a rigorous mathematical framework for understanding how hedging activities alter the payoff of derivatives, which is critical for accurate pricing and risk management in institutional trading.

High complexity due to the need to solve nonlinear PDEs and implicit ODEs. Requires advanced numerical methods for partial differential equations and fixed-point iterations.

The paper provides detailed mathematical derivations, explicit solutions for quadratic payoffs, and numerical experiments with specified parameters. However, it is a theoretical paper without provided code repositories, so exact numerical reproduction requires implementing the described algorithms.