Static Arbitrage Bounds on Basket Option Prices

Thumbnail Image

Date

Authors

Journal Title

Journal ISSN

Volume Title

Publisher

Abstract

Description

We consider the problem of computing upper and lower bounds on the price of a European basket call option, given prices on other similar baskets. Although this problem is very hard to solve exactly in the general case, we show that in some instances the upper and lower bounds can be computed via simple closed-form expressions, or linear programs. We also introduce an efficient linear programming relaxation of the general problem based on an integral transform interpretation of the call price function. We show that this relaxation is tight in some of the special cases examined before.
To Appear in Mathematical Programming, Series A

Keywords

Optimization and Control, Probability, Statistical Finance, 44A12; 44A60; 90C05; 90C34; 91B28

Citation

URI

http://salesiana.dossiersoluciones.com/handle/123456789/210130

Consulte el texto completo en el siguiente enlace:

https://arxiv.org/abs/math/0302243
 http://arxiv.org/abs/math/0302243

Collections

arXiv