Journal of Advances in Mathematics and Computer Science
https://journaljamcs.com/index.php/JAMCS
<p style="text-align: justify;"><strong>Journal of Advances in Mathematics and Computer Science (ISSN: 2456-9968)</strong> aims to publish original research articles, review articles and short communications, in all areas of mathematics and computer science. Subject matters cover pure and applied mathematics, mathematical foundations, statistics and game theory, use of mathematics in natural science, engineering, medicine, and the social sciences, theoretical computer science, algorithms and data structures, computer elements and system architecture, programming languages and compilers, concurrent, parallel and distributed systems, telecommunication and networking, software engineering, computer graphics, scientific computing, database management, computational science, Artificial Intelligence, human-computer interactions, etc. By not excluding papers based on novelty, this journal facilitates the research and wishes to publish papers as long as they are technically correct and scientifically motivated. The journal also encourages the submission of useful reports of negative results. This is a quality controlled, OPEN peer-reviewed, open-access INTERNATIONAL journal.</p> <p> </p>SCIENCEDOMAIN internationalen-USJournal of Advances in Mathematics and Computer Science2456-9968Mathematical Investigation of Option Pricing using Black- Scholes-Merton Partial Differential Equation with Transaction Cost
https://journaljamcs.com/index.php/JAMCS/article/view/1878
<p>Over the years studies have been done on option pricing valuation. The world market economies have experienced tremendous asset price fluctuations since 1980s. For this reason, efforts have been directed towards developing reliable and more accurate option pricing models. Black-Scholes-Merton model has so far been proved to be the most powerful and significant tool for the valuation of an option. However, its assumption of zero transaction cost on asset pricing yields inaccurate option values. The study investigates the effects of transaction cost on call and put option of an asset price using a two-dimensional Black-Scholes-Merton partial differential equation. The Dufort-Frankel Finite Difference Method is used to approximate the solution to the BSM model equation describing the value of an option with boundary conditions. The simulation is done with the aid of MATLAB software program. The effects of incorporating transaction cost on the two assets prices on the value of an option using BSMPDE are determined. From the study, it is established that as transaction cost increases, the call and put option values decrease. The effects of incorporating transaction cost on the values of call and put option are shown in tabular form and graphically. These results are useful to the investors in computing possible returns on investment based on more accurate asset pricing and to the government on policy formulation in controlling prices in stock exchange market.</p> <p> </p>Calvince FwagaWilys O. MukunaLevi Otanga Olwamba
Copyright (c) 2024 Author(s). The licensee is the journal publisher. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
2024-03-112024-03-113941910.9734/jamcs/2024/v39i41878