A counter-example to an option pricing formula under transaction costs

@article{Roux2006ACT,
  title={A counter-example to an option pricing formula under transaction costs},
  author={Alet Roux and Tomasz Zastawniak},
  journal={Finance and Stochastics},
  year={2006},
  volume={10},
  pages={575-578}
}
In the paper by Melnikov and Petrachenko ‘On option pricing in binomial market with transaction costs,’ Finance Stoch. 9 (2005), 141–149, a procedure is put forward for pricing and replicating an arbitrary European contingent claim in the binomial model with bid-ask spreads. We present a counter-example to show that the option pricing formula stated in that… CONTINUE READING