In this paper we examine the problem of finding investors' reservation option prices and corresponding early exercise policies of American- style options in the market with proportional transaction costs using the utility based approach proposed by Davis and Zariphopoulou (1995). We present a...

In this paper we extend the utility based option pricing and hedging approach, pioneered by Hodges and Neuberger (1989) and further developed by Davis, Panas and Zariphopoulou (1993), for the market where each transaction has a fixed cost component. We present a model, where investors have a...

In this paper we consider a loss-averse investor equipped with a specific, but still quite general, utility function motivated by behavioral finance. We show that, under certain concrete assumptions concerning the form of this utility, one can derive closed-form solutions for the investor's...

In this paper we study the continuous time optimal portfolio selection problem for an investor with a finite horizon who maximizes expected utility of terminal wealth and faces transaction costs in the capital market. It is well known that, depending on a particular structure of transaction...

Financial advisors commonly recommend that the investment horizon should be rather long in order to benefit from the 'time diversification'. In this case, in order to choose the optimal portfolio, it is necessary to estimate the risk and reward of several alternative portfolios over a long-run...

In this paper we study the continuous time optimal portfolio selection problem for an investor with a finite horizon who maximizes expected utility of terminal wealth and faces transaction costs in the capital market. It is well known that, depending on a particular structure of transaction...

One of the most successful approaches to option hedging with transaction costs is the utility-based approach, pioneered by Hodges and Neuberger [Rev. Futures Markets, 1989, 8, 222-239]. Judging against the best possible trade-off between the risk and the costs of a hedging strategy, this...