Price systems for markets with transaction costs and control problems for some finance problems
Probability
2008-12-10 v1 Computational Finance
Abstract
In a market with transaction costs, the price of a derivative can be expressed in terms of (preconsistent) price systems (after Kusuoka (1995)). In this paper, we consider a market with binomial model for stock price and discuss how to generate the price systems. From this, the price formula of a derivative can be reformulated as a stochastic control problem. Then the dynamic programming approach can be used to calculate the price. We also discuss optimization of expected utility using price systems.
Keywords
Cite
@article{arxiv.math/0702828,
title = {Price systems for markets with transaction costs and control problems for some finance problems},
author = {Tzuu-Shuh Chiang and Shang-Yuan Shiu and Shuenn-Jyi Sheu},
journal= {arXiv preprint arXiv:math/0702828},
year = {2008}
}
Comments
Published at http://dx.doi.org/10.1214/074921706000001094 in the IMS Lecture Notes Monograph Series (http://www.imstat.org/publications/lecnotes.htm) by the Institute of Mathematical Statistics (http://www.imstat.org)