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American and Bermudan Options in Currency Markets with Proportional Transaction Costs

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JournalActa Applicandae Mathematicae
DateE-pub ahead of print - 25 Feb 2015
DatePublished (current) - Feb 2016
Issue number1
Volume141
Number of pages39
Pages (from-to)187-225
Early online date25/02/15
Original languageEnglish

Abstract

The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and where the existence of a risk-free numéraire is not assumed. Constructions leading to algorithms for computing the prices, optimal hedging strategies and stopping times are presented for both long and short option positions in this setting, together with probabilistic (martingale) representations for the option prices

    Research areas

  • American options, Bermudan options, transaction costs, currency markets, superhedging, randomised stopping times, exercise policy, Optimal stopping, Currencies, Proportional transaction costs

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