Browsing by Subject "Transaction Costs"

Filter results by typing the first few letters
Now showing 1 - 3 of 3
  • Thumbnail Image
    ItemOpen Access
    An integer programming model for pricing American contingent claims under transaction costs
    (2012) Pınar, M. Ç.; Camcı, A.
    We study the problem of computing the lower hedging price of an American contingent claim in a finite-state discrete-time market setting under proportional transaction costs. We derive a new mixed-integer linear programming formulation for calculating the lower hedging price. The linear programming relaxation of the formulation is exact in frictionless markets. Our results imply that it might be optimal for the holder of several identical American claims to exercise portions of the portfolio at different time points in the presence of proportional transaction costs while this incentive disappears in their absence.
  • Thumbnail Image
    ItemOpen Access
    Sharpe-ratio pricing and hedging of contingent claims in incomplete markets by convex programming
    (Elsevier, 2008-08) Pınar, M. Ç.
    We analyze the problem of pricing and hedging contingent claims in a financial market described by a multi-period, discrete-time, finite-state scenario tree using an arbitrage-adjusted Sharpe-ratio criterion. We show that the writer’s and buyer’s pricing problems are formulated as conic convex optimization problems which allow to pass to dual problems over martingale measures and yield tighter pricing intervals compared to the interval induced by the usual no-arbitrage price bounds. An extension allowing proportional transaction costs is also given. Numerical experiments using S&P 500 options are given to demonstrate the practical applicability of the pricing scheme.
  • Thumbnail Image
    ItemOpen Access
    Valuing risky projects in incomplete markets
    (2009) Doğruer, Şaziye Pelin
    We study the problem of valuing risky projects in incomplete markets. We develop a new method to value risky projects by restricting the so-called gain-loss ratio. We calculate the project value bounds on a numerical example and compare the results of our method with the option pricing analysis method. The proposed method yields tighter price bounds to the projects than option pricing analysis method. Moreover, for a specific value of gain-loss preference parameter, λ ∗ , our new method may yield a unique project value. Interestingly, replicating portfolios are different in the upper and lower bound problems for λ ∗ . The results are obtained in a discrete time, discrete space framework. We also extend our method to markets with transaction costs and situations with uncertain state probabilities.