### Abstract

Lingua originale | English |
---|---|

pagine (da-a) | 981-1008 |

Numero di pagine | 28 |

Rivista | IMA Journal of Applied Mathematics |

Volume | 80 |

Stato di pubblicazione | Published - 2015 |

### Fingerprint

### All Science Journal Classification (ASJC) codes

- Applied Mathematics

### Cita questo

*IMA Journal of Applied Mathematics*,

*80*, 981-1008.

**European Option Pricing with Transaction Costs and Stochastic Volatility: an Asymptotic Analysis.** / Sammartino, Marco Maria Luigi; Gambino, Gaetana; Caflisch, Russel E.; Sgarra.

Risultato della ricerca: Article

*IMA Journal of Applied Mathematics*, vol. 80, pagg. 981-1008.

}

TY - JOUR

T1 - European Option Pricing with Transaction Costs and Stochastic Volatility: an Asymptotic Analysis

AU - Sammartino, Marco Maria Luigi

AU - Gambino, Gaetana

AU - Caflisch, Russel E.

AU - Sgarra, null

PY - 2015

Y1 - 2015

N2 - In this paper, the valuation problem of a European call option in the presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the option price is obtained. While the dominant term in the expansion is shown to be the classical Black and Scholes solution, the correction terms appear at O(ε1/2) and O(ε). The optimal hedging strategy is then explicitly obtained for Scott's model.

AB - In this paper, the valuation problem of a European call option in the presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the option price is obtained. While the dominant term in the expansion is shown to be the classical Black and Scholes solution, the correction terms appear at O(ε1/2) and O(ε). The optimal hedging strategy is then explicitly obtained for Scott's model.

UR - http://hdl.handle.net/10447/96538

M3 - Article

VL - 80

SP - 981

EP - 1008

JO - IMA Journal of Applied Mathematics

JF - IMA Journal of Applied Mathematics

SN - 0272-4960

ER -