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Linear vector optimization and European option pricing under proportional transaction costs

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  • Alet Roux
  • Tomasz Zastawniak

Abstract

A method for pricing and superhedging European options under proportional transaction costs based on linear vector optimisation and geometric duality developed by Lohne & Rudloff (2014) is compared to a special case of the algorithms for American type derivatives due to Roux & Zastawniak (2014). An equivalence between these two approaches is established by means of a general result linking the support function of the upper image of a linear vector optimisation problem with the lower image of the dual linear optimisation problem.

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  • Alet Roux & Tomasz Zastawniak, 2014. "Linear vector optimization and European option pricing under proportional transaction costs," Papers 1407.5877, arXiv.org.
    • Handle: RePEc:arx:papers:1407.5877
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    References listed on IDEAS

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    1. Walter Schachermayer, 2004. "The Fundamental Theorem of Asset Pricing under Proportional Transaction Costs in Finite Discrete Time," Mathematical Finance, Wiley Blackwell, vol. 14(1), pages 19-48, January.
    2. Alet Roux & Tomasz Zastawniak, 2011. "American and Bermudan options in currency markets under proportional transaction costs," Papers 1108.1910, arXiv.org, revised Jun 2014.
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