On the Modeling of Discrete-time Option Pricing with Fees

Starting with a risky (stock) and a risk-less (bond) asset in discrete-time trading markets, we develop binomial models in order to price a third instrument, a European Call Option, under the assumption that fees have to be paid. Option pricing models and option valuation techniques for discrete-time trading markets have been presented and proposed in the past. Most of the proposals have assumed that transaction costs do not have to be paid. The ones that assumed that fees have to be paid include costs in different or even simpler ways compared to the ones we present.