Optimality of the replicating strategy for American options

• Autorzy: Marek Kociński
• Języki publikacji: EN

Abstrakty

EN

The aim of this paper is to study the problem of optimality of replicating strategies associated with pricing of American contingent claims in the Cox-Ross-Rubinstein model with proportional transaction costs. We show that a replication of the option is always possible. We give sufficient conditions for the existence of a replicating strategy which is optimal, and also show an example of an optimal replicating strategy that is not optimal in the global sense.

Słowa kluczowe

EN

Cox-Ross-Rubinstein model; replicating strategy; American option

• Wydawca: Institute of Mathematics Polish Academy of Sciences
• Czasopismo: Applicationes Mathematicae
• Rocznik: 1999
• Tom: 26
• Numer: 1
• Strony: 93-105

Daty

wydano

1999

otrzymano

1998-09-16

Twórcy

autor

Marek Kociński

• Department of Mathematical Statistics and Experimentation, Agricultural University, Rakowiecka 26/30, 02-568 Warszawa, Poland

Bibliografia

• [1] J. Cvitanić, H. Pham and N. Touzi, A closed-form solution to the problem of super-replication under transaction costs, Finance Stochastics 3 (1999), 35-54.
• [2] S. Levental and A. V. Skorohod, On the possibility of hedging options in the presence of transaction costs, Ann. Appl. Probab. 7 (1997), 410-443.
• [3] M. Musiela and M. Rutkowski, Martingale Methods in Financial Modelling, Springer, Berlin, 1997.
• [4] M. Rutkowski, Optimality of replication in the CRR model with transaction costs, Appl. Math. (Warsaw) 25 (1998), 29-53.
• [5] Ł. Stettner, Option pricing in the CRR model with proportional transaction costs: A cone transformation approach, ibid. 24 (1997), 475-514.