Exact solutions and numerical simulation for Bakstein-Howison model

Abstract

In this paper, European options with transaction cost under some Black-Scholes markets are priced. In fact stochastic analysis and Lie group analysis are applied to find exact solutions for European options pricing under considered markets. In the sequel, using the finite difference method, numerical solutions are presented as well. Finally European options pricing are presented in four maturity times under some Black-Scholes models equipped with the gold asset as underlying asset. For this, the daily gold world price has been followed from Jan 1, 2016 to Jan 1, 2019 and the results of the profit and loss of options under the considered models indicate that call options prices prevent arbitrage opportunity but put options create it.