IDEAS home Printed from
   My bibliography  Save this paper

American options with gradual exercise under proportional transaction costs


  • Alet Roux
  • Tomasz Zastawniak


American options in a multi-asset market model with proportional transaction costs are studied in the case when the holder of an option is able to exercise it gradually at a so-called mixed (randomised) stopping time. The introduction of gradual exercise leads to tighter bounds on the option price when compared to the case studied in the existing literature, where the standard assumption is that the option can only be exercised instantly at an ordinary stopping time. Algorithmic constructions for the bid and ask prices and the associated superhedging strategies and optimal mixed stoping times for an American option with gradual exercise are developed and implemented, and dual representations are established.

Suggested Citation

  • Alet Roux & Tomasz Zastawniak, 2013. "American options with gradual exercise under proportional transaction costs," Papers 1308.2688,
  • Handle: RePEc:arx:papers:1308.2688

    Download full text from publisher

    File URL:
    File Function: Latest version
    Download Restriction: no

    References listed on IDEAS

    1. Kabanov, Yu. M. & Stricker, Ch., 2001. "The Harrison-Pliska arbitrage pricing theorem under transaction costs," Journal of Mathematical Economics, Elsevier, vol. 35(2), pages 185-196, April.
    2. Y.M. Kabanov, 1999. "Hedging and liquidation under transaction costs in currency markets," Finance and Stochastics, Springer, vol. 3(2), pages 237-248.
    3. Alet Roux & Tomasz Zastawniak, 2011. "American and Bermudan options in currency markets under proportional transaction costs," Papers 1108.1910,, revised Jun 2014.
    4. repec:dau:papers:123456789/1805 is not listed on IDEAS
    5. Bruno Bouchard & Emmanuel Temam, 2005. "On the Hedging of American Options in Discrete Time Markets with Proportional Transaction Costs," Papers math/0502189,
    6. Andreas Lohne & Birgit Rudloff, 2011. "An algorithm for calculating the set of superhedging portfolios in markets with transaction costs," Papers 1107.5720,, revised Dec 2013.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1308.2688. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.