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Optimality of the replicating strategy for American options. (English) Zbl 1050.91514
Summary: The aim of this paper is to study the problem of optimality of replicating strategies associated with pricing of American contingent claims in the Cox-Ross-Rubinstein model with proportional transaction costs. We show that a replication of the option is always possible. We give sufficient conditions for the existence of a replicating strategy which is optimal, and also show an example of an optimal replicating strategy that is not optimal in the global sense.

91B28 Finance etc. (MSC2000)
91B24 Microeconomic theory (price theory and economic markets)
93E20 Optimal stochastic control
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