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Randomized Stopping Times and American Option Pricing with Transaction Costs

✍ Scribed by Prasad Chalasani; Somesh Jha


Book ID
108550479
Publisher
John Wiley and Sons
Year
2001
Tongue
English
Weight
335 KB
Volume
11
Category
Article
ISSN
0960-1627

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This paper derives optimal perfect hedging portfolios in the presence of transaction costs within the binomial model of stock returns, for a market maker that establishes bid and ask prices for American call options on stocks paying dividends prior to expiration. It is shown that, while the option h