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Mathematical Methods of Operations Research

, Volume 59, Issue 2, pp 315–328 | Cite as

Hedging of the European option in discrete time under proportional transaction costs

  • Marek KocińskiEmail author
Article

Abstract.

In the paper hedging of the European option in a discrete time financial market with proportional transaction costs is studied. It is shown that for a certain class of options the set of portfolios which allow to hedge an option in a discrete time model with a bounded set of possible changes in a stock price is the same as the set of such portfolios, under assumption that the stock price evolution is given by a suitable CRR model.

Keywords

European option Self-financing strategy Hedging Transaction costs 

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Copyright information

© Springer-Verlag 2004

Authors and Affiliations

  1. 1.Katedra Ekonometrii i InformatykiWydział Ekonomiczno-RolniczyWarszawaPoland

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