Linear vector optimization and European option pricing under proportional transaction costs

DOI10.1007/978-3-662-48670-2_5zbMATH Open1337.49072arXiv1407.5877OpenAlexW2217057783MaRDI QIDQ2805756FDOQ2805756

Authors: Alet Roux, Tomasz Zastawniak 

Publication date: 13 May 2016

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

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.

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

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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)

Cites Work

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

Cited In (4)

• Option strategies with linear programming
• A variational inequality arising from European option pricing with transaction costs
• Equivalence between polyhedral projection, multiple objective linear programming and vector linear programming
• Title not available (Why is that?)

Uses Software

• PPL
• Convex
• PolyLib
• BENSOLVE

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