Optimal trading strategies for pairs trading have been studied by models that try to find either optimal shares of stocks by assuming no transaction costs or optimal timing of trading fixed numbers of shares of stocks with transaction costs. To find optimal strategies that determine optimally...

This paper considers the problem of European option pricing in the presence of proportional transaction costs when the price of the underlying follows a jump diffusion process. Using an approach that is based on maximization of the expected utility of terminal wealth, we transform the option...

We begin with an overview of classical theories and empirical methods for option pricing and hedging without transaction costs, and then with a brief review of developments in the corresponding theory when there are transaction costs. An interesting feature of the optimal hedging strategy in the...