Optimal Trading Using Black-Scholes Equation with Transaction Costs

Joy Ijeoma Adindu-Dick

doi:10.52589/AJMSS-BMQHWDX1

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Optimal Trading Using Black-Scholes Equation with Transaction Costs

African Journal of Mathematics and Statistics Studies

Vol. 5Issue 22022pp. 1–9Published 28 April 2022

DOI 10.52589/AJMSS-BMQHWDX1

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Abstract:

This work deals with optimal trading using Black-Scholes equation with transaction costs. The partial differential equation for option pricing with transaction costs on the domain (P,T)∈(0,∞)×(0,T) with terminal condition C(P,T)=Max(P-E,0),P∈(0,∞) for European call options with strike price, E, and a suitable terminal condition for European puts was obtained and then solved to obtain the optimal value function.

Keywords:Black-Scholes equation with transaction costs Optimal trading Option pricing European call and put options Portfolio of options.

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Copyrights

Authors retain copyright in their articles and have unrestricted rights to reuse, republish, archive, share, and distribute their work after publication.
All articles are published open access under the Creative Commons Attribution 4.0 International (CC BY 4.0) licence, which permits use, sharing, adaptation, distribution, and reproduction in any medium or format, including for commercial purposes, provided appropriate credit is given to the original author(s) and source.