NDLI: Bounds for path-dependent options

Please wait, while we are loading the content...

Arbitrage in markets with bid-ask spreads : The fundamental theorem of asset pricing in finite discrete time markets with bid-ask spreads and a money account

Financial innovation and risk: the role of information

Optimal investment in multidimensional Markov-modulated affine models

Annals of Finance : Volume 11, Issue 2, May 2015

Annals of Finance : Volume 11, Issue 1, February 2015

Annals of Finance : Volume 10

Annals of Finance : Volume 9

Annals of Finance : Volume 8

Annals of Finance : Volume 7

Annals of Finance : Volume 6

Annals of Finance : Volume 5

Annals of Finance : Volume 4

Annals of Finance : Volume 3

Annals of Finance : Volume 2

Annals of Finance : Volume 1

Bounds for path-dependent options

Content Provider	Springer Nature Link
Author	Brown, Donald J. Ibragimov, Rustam Walden, Johan
Copyright Year	2015
Abstract	We develop new semiparametric bounds on the expected payoffs and prices of European call options and a wide range of path-dependent contingent claims. We first focus on the trinomial financial market model in which, as is well-known, an exact calculation of derivative prices based on no-arbitrage arguments is impossible. We show that the expected payoff of a European call option in the trinomial model with martingale-difference log-returns is bounded from above by the expected payoff of a call option written on an asset with i.i.d. symmetric two-valued log-returns. We further show that the expected payoff of a European call option in the multiperiod trinomial option pricing model is bounded by the expected payoff of a call option in the two-period model with a log-normal asset price. We also obtain bounds on the possible prices of call options in the (incomplete) trinomial model in terms of the parameters of the asset’s distribution. Similar bounds also hold for many other contingent claims in the trinomial option pricing model, including those with an arbitrary convex increasing payoff function as well as for path-dependent ones such as Asian options. We further obtain a wide range of new semiparametric moment bounds on the expected payoffs and prices of path-dependent Asian options with an arbitrary distribution of the underlying asset’s price. These results are based on recently obtained sharp moment inequalities for sums of multilinear forms and U-statistics and provide their first financial and economic applications in the literature. Similar bounds also hold for many other path-dependent contingent claims.
Starting Page	433
Ending Page	451
Page Count	19
File Format	PDF
ISSN	16142446
Journal	Annals of Finance
Volume Number	11
Issue Number	3-4
e-ISSN	16142454
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2015-09-19
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Option bounds Trinomial model Binomial model Semiparametric bounds Option prices Expected payoffs Path-dependent contingent claims Asian options Moment inequalities Finance Economic Theory/Quantitative Economics/Mathematical Methods Quantitative Finance Macroeconomics/Monetary Economics//Financial Economics
Content Type	Text
Resource Type	Article
Subject	Finance

Sl.	Authority	Responsibilities	Communication Details
1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
5	Website/Portal (Helpdesk)	Queries regarding NDLI and its services	support@ndl.gov.in
6	Contents and Copyright Issues	Queries related to content curation and copyright issues	content@ndl.gov.in
7	National Digital Library of India Club (NDLI Club)	Queries related to NDLI Club formation, support, user awareness program, seminar/symposium, collaboration, social media, promotion, and outreach	clubsupport@ndl.gov.in
8	Digital Preservation Centre (DPC)	Assistance with digitizing and archiving copyright-free printed books	dpc@ndl.gov.in
9	IDR Setup or Support	Queries related to establishment and support of Institutional Digital Repository (IDR) and IDR workshops	idr@ndl.gov.in

Pricing CIR Yield Options by Conditional Moment Matching

Commodity Spread Option with Cointegration

Evidence on exercise pricing in CEO option grants in two countries

The End of the Month Option and Other Embedded Options in Futures Contracts

Saddlepoint approximations to option price in a regime-switching model

Enhancing Binomial and Trinomial Equity Option Pricing Models

Does the Hurst index matter for option prices under fractional volatility?

Credit risk analysis with creditor’s option to extend maturities

American options: the EPV pricing model

Bounds for path-dependent options

Similar Documents

Pricing CIR Yield Options by Conditional Moment Matching

Commodity Spread Option with Cointegration

Evidence on exercise pricing in CEO option grants in two countries

The End of the Month Option and Other Embedded Options in Futures Contracts

Saddlepoint approximations to option price in a regime-switching model

Enhancing Binomial and Trinomial Equity Option Pricing Models

Does the Hurst index matter for option prices under fractional volatility?

Credit risk analysis with creditor’s option to extend maturities

American options: the EPV pricing model

Bounds for path-dependent options