European option pricing and hedging with both fixed and proportional transaction costs

Journal of Economic Dynamics and Control

Volumn 30, Issue 1, 2006, Pages 1-25

  Zakamouline, Valeri I ^a  

^a Graduate School of Business   (Norway)

Author keywords

Markov chain approximation; Option hedging; Option pricing; Stochastic impulse control; Transaction costs

Indexed keywords

EID: 29944439059     PISSN: 01651889     EISSN: None     Source Type: Journal    
DOI: 10.1016/j.jedc.2004.11.002     Document Type: Article

References (26)

1. E.D. Andersen A. Damgaard Utility based option pricing with proportional transaction costs and diversification problems an interior-point optimization approach Applied Numerical Mathematics 29 1999 395-422
2. G. Barles H.M. Soner Option pricing with transaction costs and a nonlinear Black-Scholes equation Finance and Stochastics 2 1998 369-397
3. F. Black M. Scholes The pricing of options and corporate liabilities Journal of Political Economy 81 3 1973 637-654
4. B. Bouchard Y. Kabanov N. Touzi Option pricing by large risk aversion utility under transaction costs Decisions in Economics and Finance 24 2001 127-136
5. L. Clewlow S. Hodges Optimal delta-hedging under transaction costs Journal of Economic Dynamics and Control 21 1997 1353-1376
6. G.M. Constantinides T. Zariphopoulou Bounds on prices of contingent claims in an intertemporal economy with proportional transaction costs and general preferences Finance and Stochastics 3 1999 345-369
7. J.M. Cox S.A. Ross M. Rubinstein Option pricing: A simplified approach Journal of Financial Economics 7 1979 229-263
8. A. Damgaard Utility based option evaluation with proportional transaction costs Working paper Department of Accounting Finance and Law University of Southern Denmark Odense Denmark 2000
9. M.H.A. Davis Option pricing in incomplete markets In: Dempster M.A.H. Pliska S.R. (Eds) Mathematics of Derivative Securities Cambridge University Press Cambridge UK 1997 216-226
10. M.H.A. Davis A.R. Norman Portfolio selection with transaction costs Mathematics of Operations Research 15 4 1990 676-713
11. M.H.A. Davis V.G. Panas The writing price of a european contingent claim under proportional transaction costs Computational and Applied Mathematics 13 1994 115-157
12. M.H.A. Davis V.G. Panas T. Zariphopoulou European option pricing with transaction costs SIAM Journal of Control and Optimization 31 2 1993 470-493
13. H. He Convergence from discrete to continuous time contingent claim prices Review of Financial Studies 3 1990 523-546
14. S.D. Hodges A. Neuberger Optimal replication of contingent claims under transaction costs Review of Futures Markets 8 1989 222-239
15. R. Korn Portfolio optimization with strictly positive transaction costs and impulse controls Finance and Stochastics 2 1998 85-114
16. H.J. Kushner P.G. Dupuis Numerical Methods for Stochastic Control Problems in Continuous Time 1992 Springer New York
17. H.J. Kushner L.F. Martins Numerical methods for stochastic singular control problems SIAM Journal of Control and Optimization 29 6 1991 1443-1475
18. H. Leland Option pricing and replication with transaction costs Journal of Finance 5 1985 1283-1301
19. L. Martellini P. Priaulet Competing methods for option hedging in the presence of transaction costs Journal of Derivatives 9 3 2002 26-38
20. R.C. Merton Theory of rational option pricing BELL Journal of Economics 4 1973 141-183
21. B. Mohamed Simulations of transaction costs and optimal rehedging Applied Mathematical Finance 1 1994 49-63
22. M. Monoyios Option pricing with transaction costs using a markov chain approximation Journal of Economic Dynamics and Control 28 2004 889-913
23. B. Øksendal A. Sulem Optimal consumption and portfolio with both fixed and proportional transaction costs SIAM Journal of Control and Optimization 40 2002 1765-1790
24. W.H. Press S.A. Teukolsky W.T. Vetterling B.P. Flannery Numerical Recipes in C: The Art of Scientific Computing second ed 1992 Cambridge University Press Cambridge
25. A.E. Whalley P. Wilmott Hedge with an edge RISK 7 10 1994 82-85
26. A.E. Whalley P. Wilmott An asymptotic analysis of an optimal hedging model for option pricing with transaction costs Mathematical Finance 7 3 1997 307-324