BLACK & SCHOLES PRICING AND MARKETS WITH TRANSACTION COSTS : AN EXAMPLE by Haim Reisman
نویسنده
چکیده
The paper shows that in the presence of transaction costs, there exists a viable price system in which prices of call options are arbitrarily close to the price of the stock (minus the bid-ask spread on the stock and the option). The construction of such an example is possible no matter how small is the volatility of the stock or how small are the transaction costs. This shows that the Black and Scholes model may be a poor approximation in markets with transaction costs. *) Davidson School of Management, Technion Israel Institute of Technology, Haifa 32000, Israel. e-mail: [email protected] Acknowledgment: The author is grateful to A. Bick and A. Mandelbaum for helpful discussions.
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