Open AccessExpected vs. real transaction costs in European option pricing
Author(s) -
Antonio Attalienti,
Michele Bufalo
Publication year - 2022
Publication title -
discrete and continuous dynamical systems. series s
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.481
H-Index - 34
eISSN - 1937-1632
pISSN - 1937-1179
DOI - 10.3934/dcdss.2022063
Subject(s) - transaction cost , black–scholes model , database transaction , extension (predicate logic) , variable pricing , computer science , economics , mathematical economics , actuarial science , operations research , econometrics , financial economics , microeconomics , mathematics , database , volatility (finance) , programming language
As an application and extension of some previous results contained in [ 1 ], we face up the problem of the option pricing in presence of transaction costs and hence in the framework of incomplete markets. The model proposed herein passes through defining properly the expected transaction costs, opposite to the real transaction costs in trading. The analysis is carried out both in the discrete and the continuous case and leads to suitable modifications of Cox-Ross-Rubinstein and Black-Scholes formulas. An application to a specific case referred to real market data at the end of the paper seems to validate our approach.