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Improved Frechet bounds and model-free pricing of multi-asset options

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  • Peter Tankov

    (CMAP, Ecole Polytechnique)

Abstract

Improved 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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File URL: http://arxiv.org/pdf/1004.4153
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number 1004.4153.

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Date of creation: Apr 2010
Date of revision: Mar 2011
Handle: RePEc:arx:papers:1004.4153

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Web page: http://arxiv.org/

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  1. 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, Elsevier, vol. 90(2), pages 348-358, August.
  2. David Hobson & Peter Laurence & Tai-Ho Wang, 2005. "Static-arbitrage upper bounds for the prices of basket options," Quantitative Finance, Taylor & Francis Journals, Taylor & Francis Journals, vol. 5(4), pages 329-342.
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Cited by:
  1. Bernard, Carole & Jiang, Xiao & Wang, Ruodu, 2014. "Risk aggregation with dependence uncertainty," Insurance: Mathematics and Economics, Elsevier, vol. 54(C), pages 93-108.

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