Abstract
Abstract A key question in option pricing concerns how to incorporate information about the prices of existing, liquidly traded options into the prices of exotic options. Rather than trying to calibrate market prices to models, an alternative approach is to construct model‐free bounds on the price of exotic options. These bounds are derived from arbitrages that may be constructed using relatively simple trading strategies in vanilla options, and their simplicity means that the bounds are generally valid for a wide class of models. This article discusses the construction of arbitrage bounds for a variety of classes of exotic options, and describes different techniques and approaches to the construction of such bounds. Particular examples include model‐free bounds on the price of one‐touch options, and pricing barrier options under the assumption of put–call symmetry.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
