Hedging in the CRR model under concave transaction costs (Q2732369)
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scientific article; zbMATH DE number 1623620
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| English | Hedging in the CRR model under concave transaction costs |
scientific article; zbMATH DE number 1623620 |
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29 May 2002
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Cox-Ross-Rubinstein model
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discrete time financial market
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riskless bond
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risky stock
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replicating strategy
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European options
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American options
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0.88823366
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0.8764424
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0.87330294
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0.8711904
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0.87002426
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0.8666839
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Hedging in the CRR model under concave transaction costs (English)
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A discrete time financial market where two assets are given for trading, a riskless bond and a risky stock whose price is characterized by the so-called Cox-Ross-Rubinstein (CRR) model is considered: Transfers of wealth from one asset to another take place only at the discrete moments and the concave transaction costs for these transfers are incurred. The study of the problems considering the CRR model with proportional transaction costs is developed in this paper. It is shown that under some mild assumptions a replicating strategy is optimal for a special class of European options. For both European and American options simple descriptions of the set of capitals which are sufficient, starting from a given moment to hedge a contingent claim are given. The paper is dedicated to Professor K. Urbanik.
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