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European Option Pricing With General Transaction Costs And Short Selling Constraints
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Book Synopsis European Option Pricing with General Transaction Costs and Short-Selling Constraints by : Ajay Subramanian
Download or read book European Option Pricing with General Transaction Costs and Short-Selling Constraints written by Ajay Subramanian and published by . This book was released on 2005 with total page 63 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study the problem of European Option Pricing in a market with short-selling constraints and transaction costs having a very general form. We consider two types of proportional costs and a strictly positive fixed cost. We study the problem within the framework of the theory of stochastic impulse control. We show that determining the price of a European option involves calculating the value functions of two stochastic impulse control problems. We obtain explicit expressions for the quasi-variational inequalities satisfied by the value functions and derive the solution in the case where the parameters of the price processes are constants and the investor's utility function is linear. We use this result to obtain a price for a call option on the stock and prove that this price is a nontrivial lower bound on the hedging price of the call option in the presence of general transaction costs and short-selling constraints. We then consider the situation where the investor's utility function has a general form and characterize the value function as the pointwise limit of an increasing sequence of solutions to associated optimal stopping problems. We thereby devise a numerical procedure to calculate the option price in this general setting and implement the procedure to calculate the option price for the class of exponential utility functions. Finally, we carry out a qualitative investigation of the option prices for exponential and linear-power utility functions.
Book Synopsis European Option Pricing with Transaction Costs by : Asadullah Jawid
Download or read book European Option Pricing with Transaction Costs written by Asadullah Jawid and published by . This book was released on 2011 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis European Option Pricing with Fixed Transaction Costs by : Ajay Subramanian Aiyer
Download or read book European Option Pricing with Fixed Transaction Costs written by Ajay Subramanian Aiyer and published by . This book was released on 1996 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis European Options Under Proportional Transaction Costs by : Alet Roux
Download or read book European Options Under Proportional Transaction Costs written by Alet Roux and published by . This book was released on 2006 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper is devoted to optimal superreplication of European options in the discrete setting under proportional transaction costs on the underlying asset. In particular, general pricing and hedging algorithms are developed. This extends previous work by many authors, which has been focused on the binomial tree model and options with specific payoffs such as calls or puts, often under certain bounds on the magnitude of transaction costs. All such restrictions are hereby removed. The results apply to options with arbitrary payoffs in the general discrete market model with arbitrary proportional transaction costs. Numerical examples are presented to illustrate the results and their relationships to the earlier work on pricing options under transaction costs.
Download or read book Options Markets written by John C. Cox and published by Prentice Hall. This book was released on 1985 with total page 518 pages. Available in PDF, EPUB and Kindle. Book excerpt: Includes the first published detailed description of option exchange operations, the first published treatment using only elementary mathematics and the first step-by-step procedure for implementing the Black-Scholes formula in actual trading.
Book Synopsis Pricing European Options in Markets With Transaction Costs by : Stepan Sahakyan
Download or read book Pricing European Options in Markets With Transaction Costs written by Stepan Sahakyan and published by . This book was released on 2015 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we propose conceptually new approach to pricing European call options in markets with transaction costs. In contrast to the previous research, we introduce and model two - quote and gross (which includes transaction costs and fees) - price processes. Also using both price processes we introduce new portfolio replication concept, namely "quasi replication" strategy. The advantage of the proposed model is its simplicity, whereby the price of the European option is expressed in terms of the Black-Scholes type formulas.
Book Synopsis Basic Black-Scholes: Option Pricing and Trading by : Timothy Falcon Crack
Download or read book Basic Black-Scholes: Option Pricing and Trading written by Timothy Falcon Crack and published by Timothy Crack. This book was released on 2022-08 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: [Note: eBook now available; see Amazon author page for details.] Dr. Crack studied PhD-level option pricing at MIT and Harvard Business School, taught undergrad and MBA option pricing at Indiana University (winning many teaching awards), was an independent consultant to the New York Stock Exchange, worked as an asset management practitioner in London, and has traded options for 20+ years. This unique mix of learning, teaching, consulting, practice, and trading is reflected in every page. This revised 6th edition gives clear explanations of Black-Scholes option pricing theory, and discusses direct applications of the theory to trading. The presentation does not go far beyond basic Black-Scholes for three reasons: First, a novice need not go far beyond Black-Scholes to make money in the options markets; Second, all high-level option pricing theory is simply an extension of Black-Scholes; and Third, there already exist many books that look far beyond Black-Scholes without first laying the firm foundation given here. The trading advice does not go far beyond elementary call and put positions because more complex trades are simply combinations of these. UNIQUE SELLING POINTS -The basic intuition you need to trade options for the first time, or interview for an options job. -Honest advice about trading: there is no simple way to beat the markets, but if you have skill this advice can help make you money, and if you have no skill but still choose to trade, this advice can reduce your losses. -Full immersion treatment of transactions costs (T-costs). -Lessons from trading stated in simple terms. -Stylized facts about the markets (e.g., how to profit from reversals, when are T-costs highest/lowest during the trading day, implications of the market for corporate control, etc.). -How to apply European-style Black-Scholes pricing to the trading of American-style options. -Leverage through margin trading compared to leverage through options, including worked spreadsheet examples. -Black-Scholes pricing code for HP17B, HP19B, and HP12C. -Five accompanying Excel sheets: forecast T-costs for options using simple models; explore option sensitivities including the Greeks; compare stock trading to option trading; GameStop example; and, explore P(ever ITM). -Practitioner Bloomberg Terminal screenshots to aid learning. -Simple discussion of continuously-compounded returns. -Introduction to "paratrading" (trading stocks side-by-side with options). -Unique "regrets" treatment of early exercise decisions and trade-offs for American-style calls and puts. -Unique discussion of put-call parity and option pricing. -How to calculate Black-Scholes in your head in 10 seconds (also in Heard on The Street: Quantitative Questions from Wall Street Job Interviews). -Special attention to arithmetic Brownian motion with general pricing formulae and comparisons of Bachelier (1900) with Black-Scholes. -Careful attention to the impact of dividends in analytical American option pricing. -Dimensional analysis and the adequation formula (relating FX call and FX put prices through transformed Black-Scholes formulae). -Intuitive review of risk-neutral pricing/probabilities and how and why these are related to physical pricing/probabilities. -Careful distinction between the early Merton (non-risk-neutral) hedging-type argument and later Cox-Ross/Harrison-Kreps risk-neutral pricing -Simple discussion of Monte-Carlo methods in science and option pricing. -Simple interpretations of the Black-Scholes formula and PDE and implications for trading. -Careful discussion of conditional probabilities as they relate to Black-Scholes. -Intuitive treatment of high-level topics e.g., bond-numeraire interpretation of Black-Scholes (where N(d2) is P(ITM)) versus the stock-numeraire interpretation (where N(d1) is P(ITM)). -Introduction and discussion of the risk-neutral probability that a European-style call or put option is ever in the money during its life.
Book Synopsis European Option Pricing and Hedging with Both Fixed and Proportional Transaction Costs by : Valeriy Zakamulin
Download or read book European Option Pricing and Hedging with Both Fixed and Proportional Transaction Costs written by Valeriy Zakamulin and published by . This book was released on 2010 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper we provide a systematic treatment of the utility based option pricing and hedging approach in markets with both fixed and proportional transaction costs: We extend the framework developed by Davis, Panas and Zariphopoulou (1993) and formulate the option pricing and hedging problem. We propose and implement a numerical procedure for computing option prices and corresponding optimal hedging strategies. We present a careful analysis of the optimal hedging strategy and elaborate on important differences between the exact hedging strategy and the asymptotic hedging strategy of Whaley and Wilmott (1994). We provide a simulation analysis in order to compare the performance of the utility based hedging strategy against the asymptotic strategy and some other common strategies.
Book Synopsis Basic Black-Scholes by : Timothy Falcon Crack
Download or read book Basic Black-Scholes written by Timothy Falcon Crack and published by . This book was released on 2021-04 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt: [Note: eBook now available; see Amazon author page for details.] THE AUTHOR: Dr. Crack studied PhD-level option pricing at MIT and Harvard Business School, taught undergrad and MBA option pricing at Indiana University (winning many teaching awards), was an independent consultant to the New York Stock Exchange, worked as an asset management practitioner in London, and has traded options for over 20 years. This unique mix of learning, teaching, consulting, practice, and trading is reflected in every page. This revised 5th edition gives clear explanations of Black-Scholes option pricing theory, and discusses direct applications of the theory to trading. The presentation does not go far beyond basic Black-Scholes for three reasons: First, a novice need not go far beyond Black-Scholes to make money in the options markets; Second, all high-level option pricing theory is simply an extension of Black-Scholes; and Third, there already exist many books that look far beyond Black-Scholes without first laying the firm foundation given here. The trading advice does not go far beyond elementary call and put positions because more complex trades are simply combinations of these. UNIQUE SELLING POINTS -The basic intuition you need to trade options for the first time, or interview for an options job. -Honest advice about trading: there is no simple way to beat the markets, but if you have skill this advice can help make you money, and if you have no skill but still choose to trade, this advice can reduce your losses. -Full immersion treatment of transactions costs (T-costs). -Lessons from trading stated in simple terms. -Stylized facts about the markets (e.g., how to profit from reversals, when are T-costs highest/lowest during the trading day, implications of the market for corporate control, etc.). -How to apply European-style Black-Scholes pricing to the trading of American-style options. -Leverage through margin trading compared to leverage through options, including worked spreadsheet example. -Black-Scholes pricing code for the HP17B, HP19B, and HP12C. -Three downloadable spreadsheets. One allows the user to forecast T-costs for option positions using simple models. Another allows the user to explore option sensitivities including the Greeks. -Practitioner Bloomberg Terminal screenshots to aid learning. -Simple discussion of continuously-compounded returns. -Introduction to "paratrading" (trading stocks side-by-side with options to generate additional profit). -Unique "regrets" treatment of early exercise decisions and trade-offs for American-style calls and puts. -Unique discussion of put-call parity and option pricing. -How to calculate Black-Scholes in your head in 10 seconds (also in Heard on The Street: Quantitative Questions from Wall Street Job Interviews). -Special attention to arithmetic Brownian motion with general pricing formulae and comparisons to Bachelier (1900) and Black-Scholes. -Careful attention to the impact of dividends in analytical American option pricing. -Dimensional analysis and the adequation formula (relating FX call and FX put prices through transformed Black-Scholes formulae). -Intuitive review of risk-neutral pricing/probabilities and how and why these are related to physical pricing/probabilities. -Careful distinction between the early Merton (non-risk-neutral) hedging-type argument and later Cox-Ross/Harrison-Kreps risk-neutral pricing -Simple discussion of Monte-Carlo methods in science and option pricing. -Simple interpretations of the Black-Scholes formula and PDE and implications for trading. -Careful discussion of conditional probabilities as they relate to Black-Scholes. -Intuitive treatment of high-level topics e.g., bond-numeraire interpretation of Black-Scholes (where N(d2) is P(ITM)) versus the stock-numeraire interpretation (where N(d1) is P(ITM)). -Introduction and discussion of the risk-neutral probability that a European-style call or put option is ever in the money during its life.
Book Synopsis Flexibility in Buyer-Seller Relationships by : Ellen Roemer
Download or read book Flexibility in Buyer-Seller Relationships written by Ellen Roemer and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 209 pages. Available in PDF, EPUB and Kindle. Book excerpt: Ellen Roemer analyzes the flexibility trade-off in buyer-seller relationships. She investigates how relationships should be managed when there is behavioral and environmental uncertainty.
Book Synopsis Option Prices in Presence of Transaction Cost by : Roberto Baviera
Download or read book Option Prices in Presence of Transaction Cost written by Roberto Baviera and published by . This book was released on 2002 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide closed formulas for European call option ask and bid prices in presence of transaction costs. Underlying prices have the same dynamics of Black-Scholes model and a bid-ask spread proportional to bid price. We suppose that a market maker has to quote a bid and ask price for an option in a perfect competition market. Under these conditions derivative prices are obtained imposing the No Almost Sure Arbitrage Principle: the market maker fixes bid (ask) price as the highest buying (lowest selling) price that can accepted by an investor who maximizes the growth rate of his portfolio.
Book Synopsis Options Under Transaction Costs by : Alet Roux
Download or read book Options Under Transaction Costs written by Alet Roux and published by VDM Publishing. This book was released on 2008-10 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is aimed at researchers and PhD students in mathematical finance. It studies the pricing and hedging of options in financial markets with proportional transaction costs on trading in shares, modeled as bid-ask spreads, and different interest rates for borrowing and lending of cash. This is done by means of fair pricing and super-hedging. The fair price of an option is any market price for it that does not allow traders to make profit with no risk, and a super-hedging strategy allows the seller and buyer to remain in a solvent position after respectively delivering and receiving the option payoff. Efficient algo-rithms are presented for computing the bid and ask prices of European and American options; these prices serve as bounds on the fair prices. This unifies all existing algorithms for the calculation of such prices. As a by-product, a straightforward iterative method is found for determining the optimal super-hedging strategies (and stopping times) for both the buyer and seller of an option, and also optimal stopping strategies in the case of American options.
Book Synopsis Currency Option Pricing with Stochastic Interst Rates and Transaction Costs by : Mariusz Tamborski
Download or read book Currency Option Pricing with Stochastic Interst Rates and Transaction Costs written by Mariusz Tamborski and published by . This book was released on 1994 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Option Pricing with Transaction Costs and a Nonlinear Black Scholes Equation by : Guy Barles
Download or read book Option Pricing with Transaction Costs and a Nonlinear Black Scholes Equation written by Guy Barles and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In a market with transaction costs, generally, there is no nontrivial portfolio that dominates a contingent claim. Therefore, in such a market, preferences have to be introduced in order to evaluate the prices of options. The main goal of this article is to quantify this dependence on preferences in the specific example of a European call option. This is achieved by using the utility function approach of Hodges and Neuberger together with an asymptotic analysis of partial differential equations. We are led to a nonlinear Black-Scholes equation with an adjusted volatility which is a function of the second derivative of the price itself. In this model, our attitude towards risk is summarized in one free parameter a which appears in the nonlinear Black-Scholes equation : we provide an upper bound for the probability of missing the hedge in terms of a and the magnitude of the proportional transaction cost which shows the connections between this parameter a and the risk.
Book Synopsis Option Pricing by : Menachem Brenner
Download or read book Option Pricing written by Menachem Brenner and published by Free Press. This book was released on 1983 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Currency Option Pricing with Stochastic Interest Rates and Transaction Costs by : Mariusz Tamborski
Download or read book Currency Option Pricing with Stochastic Interest Rates and Transaction Costs written by Mariusz Tamborski and published by . This book was released on 1994 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Option Pricing: Real and Risk-Neutral Distributions by : George M. Constantinides
Download or read book Option Pricing: Real and Risk-Neutral Distributions written by George M. Constantinides and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
