Optimality of the replicating strategy for American options
Volume 26 / 1999
Applicationes Mathematicae 26 (1999), 93-105
DOI: 10.4064/am-26-1-93-105
Abstract
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.
