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American contingent claims under small proportional transaction costs

Tokarz, K. and Zastawniak, T. (2006) American contingent claims under small proportional transaction costs. Journal of Mathematical Economics, 43 (1). pp. 65-85. ISSN 0304-4068

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Abstract

American options are considered in the binary tree model under small proportional transaction costs. Dynamic programming type algorithms, which extend the Snell envelope construction, are developed for computing the ask and bid prices (also known as the upper and lower hedging prices) of such options together with the corresponding optimal hedging strategies for the writer and for the seller of the option. Representations of the ask and bid prices of American options in terms risk-neutral expectations of stopped option payoffs are also established in this setting.

Item Type: Article
Institution: The University of York
Academic Units: The University of York > Mathematics (York)
Depositing User: York RAE Import
Date Deposited: 17 Apr 2009 13:32
Last Modified: 17 Apr 2009 13:32
Published Version: http://dx.doi.org/10.1016/j.jmateco.2006.09.003
Status: Published
Publisher: Elsevier Science B.V.
Identification Number: 10.1016/j.jmateco.2006.09.003
URI: http://eprints.whiterose.ac.uk/id/eprint/6792

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