We consider indifference pricing of contingent claims consisting of payment flows in a discrete time model with proportional transaction costs and under exponential disutility. This setting covers utility maximisation as a special case. A dual representation is obtained for the associated...

The paper is devoted to optimal superreplication of European options in the discrete setting under proportional transaction costs on the underlying asset. In particular, general pricing and hedging algorithms are developed. This extends previous work by many authors, which has been focused on...

We extend the fundamental theorem of asset pricing to a model where the risky stock is subject to proportional transaction costs in the form of bid-ask spreads and the bank account has different interest rates for borrowing and lending. We show that such a model is free of arbitrage if and only...

American options are priced and hedged in a general discrete market in the presence of arbitrary proportional transaction costs inherent in trading the underlying asset, modelled as bid-ask spreads. Pricing, hedging and optimal stopping algorithms are established for a short position (seller's...

In the paper by Melnikov and Petrachenko published in Finance and Stochastics 9 (2005), 141--149, a procedure is put forward for pricing and replicating an arbitrary European contingent claim in the binomial market with transaction costs. We present an example to show that the option price...