Title: Indifference Pricing in a Market with Transaction Costs and Jumps
Abstract: We present an approach for pricing a European call option in presence of proportional transaction costs, considering the dynamics of the stock price following a general exponential Lévy process. The model is a generalization of the celebrated work of Davis, Panas and Zariphopoulou, where the value of the option is defined as the utility indifference price. This approach requires the solution of two stochastic singular control problems in finite time, satisfying the same Hamilton-Jacobi-Bellman equation with different terminal conditions. Numerical results are obtained by Markov chain approximation methods. Option prices are computed for both writer and buyer, when the returns follow a Brownian motion and a Variance Gamma process.
Publication Year: 2017
Publication Date: 2017-01-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
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Cited By Count: 1
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