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Structuring an option to facilitate replication with transaction costs

✍ Scribed by Sherrill Shaffer


Book ID
116100780
Publisher
Elsevier Science
Year
1989
Tongue
English
Weight
323 KB
Volume
31
Category
Article
ISSN
0165-1765

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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