A note on the Boyle-Vorst discrete-time option pricing model with transactions costs

Working in a binomial framework, Boyle and Vorst (1992) derived self-financ ing strategies perfectly replicating the final payoffs to long positions in European call and put options, assuming proportional transactions costs on trades in the stocks. The initial cost of such a strategy yields, by an ar bitrage argument, an upper bound for the option price. A lower bound for th e option price is obtained by replicating a short position. However, for sh ort positions, Boyle and Vorst had to impose three additional conditions. O ur aim in this paper is to remove Boyle and Vorst's conditions for the repl ication of short calls and puts.