Abstract
The paper explores the bounds which can be placed on the price of exotic options while making minimal assumptions about the price process. In particular, we identify the bounds on the price of a general barrier option given the price of a set of European call options. We show the hedging strategies which enforce those bounds. The hedging strategies are robust in that, after inception, trading occurs only when the barrier is breached. The hedge strategies put a floor on the maximum loss. The distribution of hedge errors under the strategy is compared with that under alternative strategies.
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.
