Option pricing in exponential L\'evy models with transaction costs

@article{Cantarutti2016OptionPI,
  title={Option pricing in exponential L\'evy models with transaction costs},
  author={Nicola Cantarutti and Jo{\~a}o Guerra and Manuel Guerra and M. Grossinho},
  journal={arXiv: Mathematical Finance},
  year={2016}
}
  • Nicola Cantarutti, João Guerra, +1 author M. Grossinho
  • Published 2016
  • Economics, Business
  • arXiv: Mathematical Finance
  • We present an approach for pricing a European call option in presence of proportional transaction costs, when the stock price follows a general exponential L\'evy process. The model is a generalization of the celebrated work of Davis, Panas and Zariphopoulou (1993), where the value of the option is obtained using the concept of utility indifference price. This requires to solve two stochastic singular control problems in finite time, satisfying the same Hamilton-Jacobi-Bellman equation and with… CONTINUE READING
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