Linear vector optimization and European option pricing under proportional transaction costs

DOI10.1007/978-3-662-48670-2_5MaRDI QIDQ2805756zbMATH OpenOpenAlexFDO

Authors Alet Roux, Tomasz Zastawniak

Publication date 13 May 2016

Published in Springer Proceedings in Mathematics & Statistics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1407.5877

zbMATH Keywords

option pricingtransaction costssuperhedginggeometric dualitylinear vector optimisation

Mathematics Subject Classification ID

Applications of optimal control and differential games (49N90) Financial applications of other theories (91G80) Duality theory (optimization) (49N15)

Abstract: A method for pricing and superhedging European options under proportional transaction costs based on linear vector optimisation and geometric duality developed by Lohne & Rudloff (2014) is compared to a special case of the algorithms for American type derivatives due to Roux & Zastawniak (2014). An equivalence between these two approaches is established by means of a general result linking the support function of the upper image of a linear vector optimisation problem with the lower image of the dual linear optimisation problem.

Recommendations

• Options under proportional transaction costs: An algorithmic approach to pricing and hedging
• European option pricing with transaction costs.
• American options under proportional transaction costs: pricing, hedging and stopping algorithms for long and short positions
• European option pricing and hedging with both fixed and proportional transaction costs
• European Option Pricing with Transaction Costs

Cites work

• An outer approximation algorithm for generating all efficient extreme points in the outcome set of a multiple objective linear programming problem
• Duality for set-valued measures of risk
• Geometric Duality in Multiple Objective Linear Programming
• Geometric duality for convex vector optimization problems
• Hedging and liquidation under transaction costs in currency markets
• Non-arbitrage criteria for financial markets with efficient friction
• On duality in multiple objective linear programming
• Options under proportional transaction costs: An algorithmic approach to pricing and hedging
• The Fundamental Theorem of Asset Pricing under Proportional Transaction Costs in Finite Discrete Time
• The Harrison-Pliska arbitrage pricing theorem under transaction costs
• The decoupling approach to binomial pricing of multi-asset options

Cited in

(4)

• Equivalence between polyhedral projection, multiple objective linear programming and vector linear programming
• A variational inequality arising from European option pricing with transaction costs
• Option strategies with linear programming
• scientific article; zbMATH DE number 2133128 (Why is no real title available?)

Describes a project that uses

Uses Software

• PPL
• Convex
• PolyLib
• BENSOLVE

This page was built for publication: Linear vector optimization and European option pricing under proportional transaction costs

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2805756)