Abstract
In this paper, we provide an efficient algorithm of the utility based reset option pricing and hedging approach in markets with both fixed and proportional transaction costs. The method results in four boundaries option prices corresponding the upper boundary and lower boundary of no transaction region and the upper boundary and lower boundary of target region, respectively. Our research substantially reduces the computational time as well as improves the computational efficiency and accuracy considerably. We propose and implement a numerical procedure for computing reset options prices and corresponding optimal hedging strategies. We elaborate on the option pricing differences between in the complete market and in the market with both fixed and proportional transaction costs.
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