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VOL. 52 | 2006 Price systems for markets with transaction costs and control problems for some finance problems
Tzuu-Shuh Chiang, Shang-Yuan Shiu, Shuenn-Jyi Sheu

Editor(s) Hwai-Chung Ho, Ching-Kang Ing, Tze Leung Lai

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.

Information

Published: 1 January 2006
First available in Project Euclid: 28 November 2007

zbMATH: 1268.91161
MathSciNet: MR2427853

Digital Object Identifier: 10.1214/074921706000001094

Subjects:
Primary: 60K35

Rights: Copyright © 2006, Institute of Mathematical Statistics

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