Pricing and Hedging of Derivative Products in the Presence of Transaction Costs
Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
According to Black-Scholes (BS) option pricing model, the price of an option should be identical to the price of a portfolio of assets with the same pay-off. With transaction costs, the BS no-arbitrage pricing argument for option pricing is no longer valid. There are other models proposed, i.e. Leland's method for pricing European calls, assuming that trading takes place only at descrete intervals, in the presence of transaction costs. This alternative strategy depends on the environment, the option to be replicated, the level of transaction costs and the revision interval.
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IdentifiersURN: urn:nbn:se:su:diva-2200OAI: oai:DiVA.org:su-2200DiVA: diva2:191107