In the present paper we analyse the American option valuation problem in a stochastic volatility model when transaction costs are taken into account. We shall show that it can be formulated as a singular stochastic optimal control problem, proving the existence and uniqueness of the viscosity solution for the associated Hamilton-Jacobi-Bellman partial differential equation. Moreover, after performing a dimensionality reduction through a suitable choice of the utility function, we shall provide a numerical example illustrating how American options prices can be computed in the present modelling framework.
American option valuation in a stochastic volatility model with transaction costs / A. Cosso, D. Marazzina, C. Sgarra. - In: STOCHASTICS. - ISSN 1744-2508. - 87:3(2015), pp. 518-536. [10.1080/17442508.2014.989525]
American option valuation in a stochastic volatility model with transaction costs
A. CossoPrimo
;
2015
Abstract
In the present paper we analyse the American option valuation problem in a stochastic volatility model when transaction costs are taken into account. We shall show that it can be formulated as a singular stochastic optimal control problem, proving the existence and uniqueness of the viscosity solution for the associated Hamilton-Jacobi-Bellman partial differential equation. Moreover, after performing a dimensionality reduction through a suitable choice of the utility function, we shall provide a numerical example illustrating how American options prices can be computed in the present modelling framework.File | Dimensione | Formato | |
---|---|---|---|
Cosso, Marazzina, Sgarra - 2015.pdf
accesso riservato
Tipologia:
Publisher's version/PDF
Dimensione
494.56 kB
Formato
Adobe PDF
|
494.56 kB | Adobe PDF | Visualizza/Apri Richiedi una copia |
Pubblicazioni consigliate
I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.