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A Convexity Approach to Option Pricing with Transaction Costs in Discrete Models

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Stochastic Analysis with Financial Applications

Part of the book series: Progress in Probability ((PRPR,volume 65))

Abstract

We study the option pricing problems under transaction costs in a discrete financial model with a riskless bond and one risky asset. For general models with a transaction fee, a perfectly replicating portfolio (if it exists) may not be optimal, i.e., a perfectly replicating portfolio may cost more than certain portfolios which super replicate the contingent claim.

Mathematics Subject Classification (2000). Primary 90A99; Secondary 60F99.

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Author information

Authors and Affiliations

  1. Institute of Mathematics, Academia Sinica, Taipei, Taiwan

    Tzuu-Shuh Chiang & Shuenn-Jyi Sheu

Authors
  1. Tzuu-Shuh Chiang
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  2. Shuenn-Jyi Sheu
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Corresponding author

Correspondence to Tzuu-Shuh Chiang .

Editor information

Editors and Affiliations

  1. Japan Science and Technology Agency, Department of Mathematical Sciences, Ritsumeikan University, 1-1-1 Nojihigashi, Kusatsu, Shiga, 525-8577, Japan

    Arturo Kohatsu-Higa

  2. Division of Mathematical Sciences, Nanyang Technological University, SPMS-MAS-05-43, 21 Nanyang Link, Singapore, 637371, Singapore

    Nicolas Privault

  3. Department of Mathematics, National Central University, No.300, Zhongda Rd., Zhongli City, 320, Taiwan R.O.C.

    Shuenn-Jyi Sheu

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Chiang, TS., Sheu, SJ. (2011). A Convexity Approach to Option Pricing with Transaction Costs in Discrete Models. In: Kohatsu-Higa, A., Privault, N., Sheu, SJ. (eds) Stochastic Analysis with Financial Applications. Progress in Probability, vol 65. Springer, Basel. https://doi.org/10.1007/978-3-0348-0097-6_17

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