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American and Bermudan options in currency markets under proportional transaction costs

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  • Alet Roux
  • Tomasz Zastawniak

Abstract

The pricing and hedging of a general class of options (including American, Bermudan and European options) on multiple assets are studied in the context of currency markets where trading is subject to proportional transaction costs, and where the existence of a risk-free num\'eraire is not assumed. Constructions leading to algorithms for computing the prices, optimal hedging strategies and stopping times are presented for both long and short option positions in this setting, together with probabilistic (martingale) representations for the option prices.

Suggested Citation

  • Alet Roux & Tomasz Zastawniak, 2011. "American and Bermudan options in currency markets under proportional transaction costs," Papers 1108.1910, arXiv.org, revised Jun 2014.
    • Handle: RePEc:arx:papers:1108.1910
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    File URL: http://arxiv.org/pdf/1108.1910
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    Cited by:

    1. Alet Roux & Tomasz Zastawniak, 2013. "American options with gradual exercise under proportional transaction costs," Papers 1308.2688, arXiv.org.
    2. Alet Roux & Tomasz Zastawniak, 2014. "Linear vector optimization and European option pricing under proportional transaction costs," Papers 1407.5877, arXiv.org.

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