Robust hedging of the lookback option
AbstractThe aim of this article is to find bounds on the prices of exotic derivatives, and in particular the lookback option, in terms of the (market) prices of call options. This is achieved without making explicit assumptions about the dynamics of the price process of the underlying asset, but rather by inferring information about the potential distribution of asset prices from the call prices. Thus the bounds we obtain and the associated hedging strategies are model independent. The appeal and significance of the hedging strategies arises from their universality and robustness to model mis-specification.
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Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 2 (1998)
Issue (Month): 4 ()
Note: received: August 1996; final version received: August 1997
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Web page: http://www.springerlink.com/content/101164/
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
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