Randomized stopping times and American option pricing with transaction costs

@inproceedings{Chalasani1999RandomizedST,
  title={Randomized stopping times and American option pricing with transaction costs},
  author={Prasad Chalasani and Somesh Jha},
  year={1999}
}
In a general discrete-time market model with proportional t ransaction costs, we derive new expectation representations of the range of arbi tr ge-free prices of an arbitrary American option. The upper bound of this range is called the u pper hedging price, and is the smallest initial wealth needed to construct a self-fin ancing portfolio whose value dominates the option payoff at all times. A surprising featu re of our upper hedging price representation is that it requires the use of… CONTINUE READING
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