Search results for "Transaction cost"
showing 10 items of 81 documents
Yet Another Note on the Leland's Option Hedging Strategy with Transaction Costs
2005
In a market with transaction costs the option hedging is costly. The idea presented by Leland (1985) was to include the expected transaction costs in the cost of a replicating portfolio. The resulting Leland's pricing and hedging method is an adjusted Black-Scholes method where one uses a modified volatility in the Black-Scholes formulas for the option price and delta. The Leland's method has been criticized on different grounds. Despite the critique, the risk-return tradeoff of the Leland's strategy is often better than that of the Black-Scholes strategy even in the case when a hedger starts with the same initial value of a replicating portfolio. This implies that the Leland's modification…
Fooled by Data-Mining: The Real-Life Performance of Market Timing with Moving Averages
2013
In this paper, we revisit the myths regarding the superior performance of market timing strategies based on moving average and time-series momentum rules. These active timing strategies are very appealing to investors because of their extraordinary simplicity and because they promise substantial advantages over their passive counterparts (see, for example, the paper by M. Faber (2007) "A Quantitative Approach to Tactical Asset Allocation" published in the Journal of Wealth Management). However, the ``too good to be true" reported performance of these market timing rules raises a legitimate concern as to whether this performance is realistic and whether investors can expect that future perfo…
El componente de selección adversa de la horquilla de precios cotizada: una revisión de los modelos de estimación
2005
-Jose.E.Farinos@uv.es -Ana.M.Ibanez@uv.es Una de las principales preocupaciones en el área de la microestructura del mercado ha sido la estimación de los componentes no observables de la horquilla de precios a partir de las series de datos que proporcionan los mercados financieros, despertando quizá un mayor interés el de selección adversa por la implicaciones que supone la existencia del mismo. Esto ha provocado el desarrollo de numerosos modelos empíricos que, basándose en las propiedades estadísticas de las series de precios, proporcionan dichas estimaciones. La mayor disponibilidad de datos existentes en los mercados ha permitido el desarrollo en los últimos años de modelos basados en t…
Public-Private Partnership: Transaction Costs of Tendering
2016
Abstract What are the transaction costs of participating in a public-private partnership (PPP) tender? Prior research indicate that there is a significant amount of resources required. However, few researchers seem to measure transaction costs directly. The purpose of this paper is therefore to fill this knowledge gap by presenting estimated transaction costs from both public and private actors. The underlying approach for this research was a case study of a new primary school in Norway. This case was chosen because of the expedient access to detailed information of the tendering process. The main source of data was documents and estimated figures obtained from public and private actors inv…
Market for ideas and reception of physiocracy in Spain: some analytical and historical suggestions
1995
This essay aims to situate the phenomenon of the international spread of the economic ideas of a particular school of thought within the framework of the ‘market for ideas' approach outlined by George Stigler. On the one hand, the paper attempts to amplify the theoretical model of a demand-driven market for ideas, introducing the concepts of public goods, utility, transaction costs and other institutional variables, and on the other this analytical approach is applied to the Spanish market for ideas of the 18th century and its reception of physiocracy, obtaining a new perspective on the spread of ideas of the iconomistes in comparison with the existing literature.
HOW TRANSACTION COSTS AFFECT THE SALES CHANNEL CHOICE: AN EMPIRICAL RESEARCH IN THE SICILIAN ORNAMENTAL PLANT SECTOR
2014
This paper, based on transaction costs theory, represents a contribution to the existing literature, and a first step towards a more in depth study, aimed to identify the more important transaction costs able to influence the strategic choices of firms. In particular, this approach has been used to evaluate, through a telephone survey, the influence of transaction costs on the sale channels choice made by a small sample of Sicilian firms active in the Ornamental Plants economic sub-sector. Results show that transaction costs increase moving from direct sale to the sale to wholesalers and large scale retail (LSR) channels, confirming our starting hypothesis. In particular, information and ne…
Transaction Costs, Standardization and Modularity in Credit Risk Transfer Market
2010
The advent of a credit risk market has profoundly altered the role of banking firms into one of asset originator and asset distributor rather than the asset holder. Banks have traditionally originated and held credit risk. It emphasis the different role of financial institutions from holders of credit risk to originators and distributors of credit risk. In this paper I aim to evaluate how the modularity and the standardization create the precondition for the creation of a credit risk transfer market in the banking industry. The intermediate market of credit risk transfer appears when the banking production processes have become more disintegrated. The vertical disintegration of the banking …
The foundations of the new theories in health economics
1997
In health economics, theoretic approaches such as the theory of contracts, the economy of conventions, the theory of transaction costs and the evolutionary theory, have been applied recently. The present paper offers a classification of these different theories focusing on their epistemological foundations. The clarification of their assumptions about individual rationality (substantial or procedural rationality), about coordination modality (by inter-individual contracts or collective rules), about uncertainty (probabilistic risk or cognitive uncertainty), shows oppositions between these theories. Nevertheless, the application of these different theories in health economics shows that they…
Portfolio optimisation with strictly positive transaction costs and impulse control
1998
One crucial assumption in modern portfolio theory of continuous-time models is the no transaction cost assumption. This assumption normally leads to trading strategies with infinite variation. However, following such a strategy in the presence of transaction costs will lead to immediate ruin. We present an impulse control approach where the investor can change his portfolio only finitely often in finite time intervals. Further, we consider transaction costs including a fixed and a proportional cost component. For the solution of the resulting control problems we present a formal optimal stopping approach and an approach using quasi-variational inequalities. As an application we derive a non…
European Option Pricing and Hedging with Both Fixed and Proportional Transaction Costs
2003
Abstract In this paper we provide a systematic treatment of the utility based option pricing and hedging approach in markets with both fixed and proportional transaction costs: we extend the framework developed by Davis et al. (SIAM J. Control Optim., 31 (1993) 470) and formulate the option pricing and hedging problem. We propose and implement a numerical procedure for computing option prices and corresponding optimal hedging strategies. We present a careful analysis of the optimal hedging strategy and elaborate on important differences between the exact hedging strategy and the asymptotic hedging strategy of Whalley and Wilmott (RISK 7 (1994) 82). We provide a simulation analysis in order …