European Options under Proportional Transaction Costs: An Algorithmic Approach to Pricing and Hedging
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BibTeX
@MISC{Roux_europeanoptions,
author = {Alet Roux and Krzysztof Tokarz and Tomasz Zastawniak},
title = {European Options under Proportional Transaction Costs: An Algorithmic Approach to Pricing and Hedging},
year = {}
}
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Abstract
Abstract The paper is devoted to optimal superreplication of European options in the discrete setting under proportional transaction costs on the underlying asset. In particular, general pricing and hedging algorithms are developed. This extends previous work by many authors, which has been focused on the binomial tree model and options with specific payoffs such as calls or puts, often under certain bounds on the magnitude of transaction costs. All such restrictions are hereby removed. The results apply to options with arbitrary payoffs in the general discrete market model with arbitrary proportional transaction costs. Numerical examples are presented to illustrate the results and their relationships to the earlier work on pricing options under transaction costs. 1
Keyphrases
european option proportional transaction algorithmic approach transaction cost numerical example proportional transaction cost underlying asset hedging algorithm general pricing arbitrary proportional transaction cost optimal superreplication specific payoff many author previous work binomial tree model general discrete market model certain bound arbitrary payoff
