Sharp Upper and Lower Bounds for Basket Options

Laurence, Peter; Wang, Tai‐Ho

doi:10.2139/ssrn.578146

Cited by 20 publications

(23 citation statements)

References 22 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…, Law(S k T ) at T , the search for lower/upper bounds involves infinite-dimensional linear programming issues. Analytical expressions have been obtained in the case of basket options [LW05,LW04]. These correspond to the determination of optimal copulas.…”

Section: Introductionmentioning

confidence: 99%

Model-independent bounds for option prices—a mass transport approach

2013

View full text Add to dashboard Cite

Abstract. In this paper we investigate model-independent bounds for exotic options written on a risky asset using infinite-dimensional linear programming methods. Based on arguments from the theory of MongeKantorovich mass-transport we establish a dual version of the problem that has a natural financial interpretation in terms of semi-static hedging. In particular we prove that there is no duality gap.

show abstract

Section: Introductionmentioning

confidence: 99%

Model-independent bounds for option prices—a mass transport approach

2013

View full text Add to dashboard Cite

show abstract

“…Going back to the seminal work by Merton [19], many authors have studied the problem of finding bounds for option prices under incomplete market conditions or an incomplete knowledge of the distribution of the price of the underlying assets (see, e.g., [3,4,5,8,9,15,16,18,21,22,23] and the references therein). Here, we study bounds on the expected payoff of a European call option and its associated risk, given only information on the moments of the underlying asset price at maturity.…”

Section: Introductionmentioning

confidence: 99%

Third-order extensions of Lo’s semiparametric bound for European call options

Zuluaga

Peña

2009

European Journal of Operational Research

View full text Add to dashboard Cite

Computing semiparametric bounds for option prices is a widely studied pricing technique. In contrast to parametric pricing techniques, such as Monte-Carlo simulations, semiparametric pricing techniques do not require strong assumptions about the underlying asset price distribution. We extend classical results in this area in two main directions. First, we derive closed-form semiparametric bounds for the payoff of a European call option, given up to third-order moment information on the underlying asset price. We analyze how these bounds tighten the corresponding bounds, when only second-order moment (i.e., mean and variance) information is provided. Second, we derive closed-form semiparametric bounds for the risk associated to the expected payoff of a European call option, when the mean and the variance of the underlying asset price are given. Applications of these results to other areas such as inventory and supply chain management are also discussed.

show abstract

“…In a series of papers [5][6][7], the authors study static-arbitrage lower and upper bounds for basket options. Laurence and Wang [7] provide closed-form upper bounds by solving a linear program when forward and single call prices per asset are given.…”

Section: Introductionmentioning

confidence: 99%

“…Laurence and Wang [7] provide closed-form upper bounds by solving a linear program when forward and single call prices per asset are given. They accomplish the same task for lower bounds but only for n = 2.…”

Section: Introductionmentioning

confidence: 99%

Computing lower bounds on basket option prices by discretizing semi-infinite linear programming

2015

View full text Add to dashboard Cite

The problem of finding static-arbitrage bounds on basket option prices has received a growing attention in the literature. In this paper, we focus on the lower bound case and propose a novel efficient solution procedure that is based on the separation problem. The computational burden of the proposed method is polynomial in the input data size. We also discuss the case of possibly negative weight vectors which can be applied to spread options.

show abstract

Sharp Upper and Lower Bounds for Basket Options

Cited by 20 publications

References 22 publications

Model-independent bounds for option prices—a mass transport approach

Model-independent bounds for option prices—a mass transport approach

Third-order extensions of Lo’s semiparametric bound for European call options

Computing lower bounds on basket option prices by discretizing semi-infinite linear programming

Contact Info

Product

Resources

About