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Normal Approximation of the Binomial Option Price with Transaction Costs

Title
Normal Approximation of the Binomial Option Price with Transaction Costs
Authors
곽승재
Date Issued
2012
Publisher
포항공과대학교
Abstract
We consider an option pricing model with transaction costs in a discrete-time framework. European options are replicated as in the Cox-Ross-Rubinstein binomial option pricing model, reserving extra amount to cover proportional transaction costs at each trading. We construct a simple Black-Scholes type approximate pricing formula based on a higher-order approximation of the value of replicating portfolio. We compare our numerical results to Boyle and Vorst's which is based on a first-order approximation.
URI
http://postech.dcollection.net/jsp/common/DcLoOrgPer.jsp?sItemId=000001390017
http://oasis.postech.ac.kr/handle/2014.oak/1652
Article Type
Thesis
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