IDEAS home Printed from https://ideas.repec.org/a/bla/mathfi/v30y2020i2p377-402.html
   My bibliography  Save this article

Consistency of option prices under bid–ask spreads

Author

Listed:
  • Stefan Gerhold
  • Ismail Cetin Gülüm

Abstract

Given a finite set of European call option prices on a single underlying, we want to know when there is a market model that is consistent with these prices. In contrast to previous studies, we allow models where the underlying trades at a bid–ask spread. The main question then is how large (in terms of a deterministic bound) this spread must be to explain the given prices. We fully solve this problem in the case of a single maturity, and give several partial results for multiple maturities. For the latter, our main mathematical tool is a recent result on approximation by peacocks.

Suggested Citation

  • Stefan Gerhold & Ismail Cetin Gülüm, 2020. "Consistency of option prices under bid–ask spreads," Mathematical Finance, Wiley Blackwell, vol. 30(2), pages 377-402, April.
    • Handle: RePEc:bla:mathfi:v:30:y:2020:i:2:p:377-402
    DOI: 10.1111/mafi.12230
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/mafi.12230
    Download Restriction: no
    File URL: https://libkey.io/10.1111/mafi.12230?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Samuel N. Cohen & Christoph Reisinger & Sheng Wang, 2020. "Detecting and repairing arbitrage in traded option prices," Papers 2008.09454, arXiv.org.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:mathfi:v:30:y:2020:i:2:p:377-402. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.