Game options with gradual exercise and cancellation under proportional transaction costs

Alet Roux; Tomasz Jerzy Zastawniak

doi:10.1080/17442508.2018.1499102

Game options with gradual exercise and cancellation under proportional transaction costs

Alet Roux, Tomasz Jerzy Zastawniak

Mathematics

Research output: Contribution to journal › Article › peer-review

Abstract

Game (Israeli) options in a multi-asset market model with proportional transaction costs are studied in the case when the buyer is allowed to exercise the option and the seller has the right to cancel the option gradually at a mixed (or randomised) stopping time, rather than instantly at an ordinary stopping time. Allowing gradual exercise and cancellation leads to increased flexibility in hedging, and hence tighter bounds on the option price as compared to the case of instantaneous exercise and cancellation. Algorithmic constructions for the bid and ask prices, and the associated superhedging strategies and optimal mixed stopping times for both exercise and cancellation are developed and illustrated. Probabilistic dual representations for bid and ask prices are also established.

Original language	English
Number of pages	31
Journal	Stochastics: An International Journal of Probability and Stochastic Processes
Volume	90
Issue number	8
Early online date	24 Jul 2018
DOIs	https://doi.org/10.1080/17442508.2018.1499102
Publication status	E-pub ahead of print - 24 Jul 2018

Bibliographical note

© 2018 Informa UK Limited, trading as Taylor & Francis Group. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details

Access to Document

10.1080/17442508.2018.1499102

RouxZastawniak
© 2018 Informa UK Limited, trading as Taylor & Francis Group. This is an author-produced version of the published paper. Uploaded in accordance with the publisher’s self-archiving policy. Further copying may not be permitted; contact the publisher for details
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Cite this

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