Replicating Strategies with Transaction Costs
| Autor: | Ying-Chin Wang, 王盈欽 |
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| Rok vydání: | 2003 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 91 This thesis explores the issue associated with option pricing and replication in the presence of transaction costs. It examines the replicating strategies in both the stock market and bond market when transaction costs are not negligible. In the stock market, we address two assumptions of the Black-Scholes (1973): continuous rebalancing and no transaction costs. When we drop the possibility of continuous rebalancing, the hedging error in single and multiple time periods are analyzed. In a model with transaction costs, we obtain an economic characterization of temporal granularity as in Bertsimas, Kogan, and Lo (2000). The concept of granularity formalizes the intuition that derivatives with higher volatility and higher gamma risk are more difficult to hedge. Equivalently, higher granularity indicates that time is grainier or less continuous. In addition, we show that temporal granularity does not exist if transaction costs fail to decline fast enough as the number of trading rounds increases indefinitely. In the bond market, we propose a procedure for pricing options on zero-coupon bonds in a discrete-time HJM model (1990) with transaction costs. The cost of creating a derivative instrument with transaction costs can be expressed with respect to the adjusted process. The level of transaction costs’ least upper bound is found for ensuring no riskless arbitrage opportunities. Furthermore, the properties of adjusted process in the bond market are compared with the case of Boyle & Vorst (1992) in the stock market. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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