European Option Pricing with Transaction Costs

This paper deals with the construction of a nite di erence scheme for a nonlinear Black-Scholes partial di erential equation modelling stock option pricing in the realistic case whentransaction costs arising in the hedging of portfolios are taken into account. The analysedmodel is the Barles-Soner one.

Keywords:

Nonlinear Black-Scholes equation , European option , Transaction costs