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Utility based option evaluation with proportional transaction costs

✍ Scribed by Anders Damgaard


Publisher
Elsevier Science
Year
2003
Tongue
English
Weight
314 KB
Volume
27
Category
Article
ISSN
0165-1889

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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