European Option Pricing with Transaction Costs in Lévy Jump Environment

Author:

Li Jiayin1ORCID,Shu Huisheng1,Kan Xiu2

Affiliation:

1. School of Science, Donghua University, Shanghai 200051, China

2. College of Electronic and Electrical Engineering, Shanghai University of Engineering Science, Shanghai 201620, China

Abstract

The European option pricing problem with transaction costs is investigated for a risky asset price model with Lévy jump. By the aid of arbitrage pricing theory and the generalized Itô formula (which includes Poisson jump), the explicit solution to the risk asset price model is given. According to arbitrage-free principle, we first discretize the continuous-time model. Then, in each small time interval, the transaction costs are introduced. By using theΔ-hedging strategy, the explicit solutions of the European options pricing formula with transaction costs are given for the risky asset price model with Lévy jump.

Funder

National Natural Science Foundation of China

Publisher

Hindawi Limited

Subject

Applied Mathematics,Analysis

Cited by 2 articles. 订阅此论文施引文献 订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献

1. Option Pricing under the Subordinated Market Models;Discrete Dynamics in Nature and Society;2022-01-15

2. Correlated continuous time random walk and option pricing;Physica A: Statistical Mechanics and its Applications;2016-04

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