### Abstract

We study partial hedging for game options in markets with transaction costs bounded from below. More precisely, we assume that the investor's transaction costs for each trade are the maximum between proportional transaction costs and a fixed transaction cost. We prove that in the continuous-time Black-Scholes (BS) model, there exists a trading strategy which minimizes the shortfall risk. Furthermore, we use binomial models in order to provide numerical schemes for the calculation of the shortfall risk and the corresponding optimal portfolio in the BS model.

Original language | English |
---|---|

Pages (from-to) | 926-946 |

Number of pages | 21 |

Journal | Advances in Applied Probability |

Volume | 48 |

Issue number | 3 |

DOIs | |

Publication status | Published - 1 Sep 2016 |

Externally published | Yes |

### Keywords

- Game option
- Hedging with friction
- Risk minimization
- Transaction cost

## Cite this

Dolinsky, Y., & Kifer, Y. (2016). Risk minimization for game options in markets imposing minimal transaction costs.

*Advances in Applied Probability*,*48*(3), 926-946. https://doi.org/10.1017/apr.2016.34