Advanced Search
MyIDEAS: Login to save this paper or follow this series

Model-independent no-arbitrage conditions on American put options

Contents:

Author Info

  • Alexander M. G. Cox
  • Christoph Hoeggerl
Registered author(s):

    Abstract

    We consider the pricing of American put options in a model-independent setting: that is, we do not assume that asset prices behave according to a given model, but aim to draw conclusions that hold in any model. We incorporate market information by supposing that the prices of European options are known. In this setting, we are able to provide conditions on the American Put prices which are necessary for the absence of arbitrage. Moreover, if we further assume that there are finitely many European and American options traded, then we are able to show that these conditions are also sufficient. To show sufficiency, we construct a model under which both American and European options are correctly priced at all strikes simultaneously. In particular, we need to carefully consider the optimal stopping strategy in the construction of our process.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://arxiv.org/pdf/1301.5467
    File Function: Latest version
    Download Restriction: no

    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1301.5467.

    as in new window
    Length:
    Date of creation: Jan 2013
    Date of revision:
    Handle: RePEc:arx:papers:1301.5467

    Contact details of provider:
    Web page: http://arxiv.org/

    Related research

    Keywords:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Cousot, Laurent, 2007. "Conditions on option prices for absence of arbitrage and exact calibration," Journal of Banking & Finance, Elsevier, vol. 31(11), pages 3377-3397, November.
    2. Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-51, October.
    3. David G. Hobson, 1998. "Robust hedging of the lookback option," Finance and Stochastics, Springer, vol. 2(4), pages 329-347.
    4. Haydyn Brown & David Hobson & L. C. G. Rogers, 2001. "Robust Hedging of Barrier Options," Mathematical Finance, Wiley Blackwell, vol. 11(3), pages 285-314.
    5. Bjork, Tomas, 2009. "Arbitrage Theory in Continuous Time," OUP Catalogue, Oxford University Press, edition 3, number 9780199574742, September.
    6. Alexander Cox & Jan Obłój, 2011. "Robust pricing and hedging of double no-touch options," Finance and Stochastics, Springer, vol. 15(3), pages 573-605, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:arx:papers:1301.5467. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators).

    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.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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