Option Pricing without Price Dynamics: A Probabilistic Approach
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Publication:6478367
arXivmath/0612075MaRDI QIDQ6478367FDOQ6478367
Authors: Dimitris Bertsimas, Natasha Bushueva 
Publication date: 3 December 2006
Abstract: Employing probabilistic techniques we compute best possible upper and lower bounds on the price of an option on one or two assets with continuous piecewise linear payoff function based on prices of simple call options of possibly distinct maturities and the no-arbitrage condition, but without any assumption on the price dynamics of underlying assets. We show that the problem reduces to solving linear optimization problems that we explicitly characterize. We report numerical results that illustrate the effectiveness of the algorithms we develop.
Characteristic functions; other transforms (60E10) Transition functions, generators and resolvents (60J35) Microeconomic theory (price theory and economic markets) (91B24)
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