Game options with gradual exercise and cancellation under proportional transaction costs

DOI10.1080/17442508.2018.1499102MaRDI QIDQ5086463zbMATHOpenAlexWikidataFDO

Authors Alet Roux, Tomasz Zastawniak

Publication date 5 July 2022

Published in Stochastics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1612.02312

zbMATH Keywords

optimal stoppingtransaction costsrandomized stoppinggame options

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: Game (Israeli) options in a multi-asset market model with proportional transaction costs are studied in the case when the buyer is allowed to exercise the option and the seller has the right to cancel the option gradually at a mixed (or randomised) stopping time, rather than instantly at an ordinary stopping time. Allowing gradual exercise and cancellation leads to increased flexibility in hedging, and hence tighter bounds on the option price as compared to the case of instantaneous exercise and cancellation. Algorithmic constructions for the bid and ask prices, and the associated superhedging strategies and optimal mixed stopping times for both exercise and cancellation are developed and illustrated. Probabilistic dual representations for bid and ask prices are also established.

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Cited in

(11)

• Mechanics of good trade execution in the framework of linear temporary market impact
• scientific article; zbMATH DE number 6468931 (Why is no real title available?)
• Game options
• Hedging of game options in discrete markets with transaction costs
• Von Neumann–Gale model, market frictions and capital growth
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• American options with gradual exercise under proportional transaction costs
• GAME CALL OPTIONS REVISITED
• Pricing and hedging game options in currency models with proportional transaction costs

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