Transaction costs and option portfolio

Result code in IS VaVaI

<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F61989100%3A27510%2F06%3A00013497" target="_blank" >RIV/61989100:27510/06:00013497 - isvavai.cz</a>

Result on the web

—

DOI - Digital Object Identifier

—

Result language

angličtina

Original language name

Transaction costs and option portfolio

Original language description

In this paper we study in particularly lattice models in presence of transaction costs. Transaction costs can be modeled as a fixed charge or a fee proportional to the price of traded assets. Here we suppose only proportional transaction costs. We imposeproportional symmetric cost on trading with the risky asset. We develop basic equations for a single-period model and also a general one for the intermediate interval of the multi-period model. In this paper we suppose initial zero position and the needof physical delivery at the terminal time. We compare the results to the Boyle and Vorst model of zero initial transaction cost which clearly underestimate the price. However, we show that the absolute amount of the replication capital invested into therisky asset stays the same. The most important result of the paper is to provide the effect of portfolio model which can be used to explain some frictions at the real market.

Czech name

Transaction costs and option portfolio

Czech description

In this paper we study in particularly lattice models in presence of transaction costs. Transaction costs can be modeled as a fixed charge or a fee proportional to the price of traded assets. Here we suppose only proportional transaction costs. We imposeproportional symmetric cost on trading with the risky asset. We develop basic equations for a single-period model and also a general one for the intermediate interval of the multi-period model. In this paper we suppose initial zero position and the needof physical delivery at the terminal time. We compare the results to the Boyle and Vorst model of zero initial transaction cost which clearly underestimate the price. However, we show that the absolute amount of the replication capital invested into therisky asset stays the same. The most important result of the paper is to provide the effect of portfolio model which can be used to explain some frictions at the real market.

Type

D - Article in proceedings

CEP classification

AH - Economics

OECD FORD branch

—

Project

<a href="/en/project/GP402%2F05%2FP085" target="_blank" >GP402/05/P085: Application of replication methods in pricing and hedging of financial derivatives at non-perfect market</a><br>

Continuities

P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year

2006

Confidentiality

S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

Article name in the collection

Mathematical Methods in Economics

ISBN

80-7043-480-5

ISSN

—

e-ISSN

—

Number of pages

8

Pages from-to

1-8

Publisher name

University of West Bohemia in Pilsen

Place of publication

Pilsen

Event location

—

Event date

—

Type of event by nationality

—

UT code for WoS article

—