arXiv:math/0702828 Abstract

arXiv:math/0702828 [math.PR]Abstract References Reviews Resources

Price systems for markets with transaction costs and control problems for some finance problems

Tzuu-Shuh Chiang, Shang-Yuan Shiu, Shuenn-Jyi Sheu

Published 2007-02-27Version 1

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.

Comments: Published at http://dx.doi.org/10.1214/074921706000001094 in the IMS Lecture Notes Monograph Series (http://www.imstat.org/publications/lecnotes.htm) by the Institute of Mathematical Statistics (http://www.imstat.org)

Journal: IMS Lecture Notes Monograph Series 2006, Vol. 52, 257-271

DOI: 10.1214/074921706000001094

Categories: math.PR, q-fin.CP

Subjects: 60K35, 60K35

Keywords: price systems, transaction costs, finance problems, stochastic control problem, dynamic programming approach

Tags: monograph, journal article, lecture notes

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