Improved Frechet bounds and model-free pricing of multi-asset options
AbstractImproved bounds on the copula of a bivariate random vector are computed when partial information is available, such as the values of the copula on a given subset of $[0,1]^2$, or the value of a functional of the copula, monotone with respect to the concordance order. These results are then used to compute model-free bounds on the prices of two-asset options which make use of extra information about the dependence structure, such as the price of another two-asset option.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1004.4153.
Date of creation: Apr 2010
Date of revision: Mar 2011
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
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- Nelsen, Roger B. & Molina, José Juan Quesada & Lallena, José Antonio Rodríguez & Flores, Manuel Úbeda, 2004. "Best-possible bounds on sets of bivariate distribution functions," Journal of Multivariate Analysis, Elsevier, vol. 90(2), pages 348-358, August.
- David Hobson & Peter Laurence & Tai-Ho Wang, 2005. "Static-arbitrage upper bounds for the prices of basket options," Quantitative Finance, Taylor and Francis Journals, vol. 5(4), pages 329-342.
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