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Author(s): Joy Ijeoma Adindu-Dick.

Volume/Issue: Volume 5 , Issue 2 (2022)

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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