Bounds on Prices of Contingent Claims in an Intertemporal Economy with Proportional Transaction Costs and General Preferences

Posted: 17 Aug 1999

See all articles by George M. Constantinides

George M. Constantinides

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Thaleia Zariphopoulou

University of Texas at Austin - Red McCombs School of Business

Abstract

Analytic bounds on the reservation write price of European-style contingent claims are derived in the presence of proportional transaction costs in a model which allows for intermediate trading. The option prices are obtained via a utility maximization approach by comparing the maximized utilities with and without the contingent claim. The mathematical tools come mainly from the theories of singular stochastic control and viscosity solutions of nonlinear partial differential equations.

JEL Classification: C6, D92, G13

Suggested Citation

Constantinides, George M. and Zariphopoulou, Thaleia, Bounds on Prices of Contingent Claims in an Intertemporal Economy with Proportional Transaction Costs and General Preferences. Available at SSRN: https://ssrn.com/abstract=164815

George M. Constantinides (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7258 (Phone)
773-752-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thaleia Zariphopoulou

University of Texas at Austin - Red McCombs School of Business ( email )

Austin, TX 78712
United States

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