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Option Pricing with Delayed Information

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  • Tomoyuki Ichiba
  • Seyyed Mostafa Mousavi

Abstract

We propose a model to study the effects of delayed information on option pricing. We first talk about the absence of arbitrage in our model, and then discuss super replication with delayed information in a binomial model, notably, we present a closed form formula for the price of convex contingent claims. Also, we address the convergence problem as the time-step and delay length tend to zero and introduce analogous results in the continuous time framework. Finally, we explore how delayed information exaggerates the volatility smile.

Suggested Citation

  • Tomoyuki Ichiba & Seyyed Mostafa Mousavi, 2017. "Option Pricing with Delayed Information," Papers 1707.01600, arXiv.org.
    • Handle: RePEc:arx:papers:1707.01600
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    References listed on IDEAS

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    1. Matteo Burzoni & Marco Frittelli & Zhaoxu Hou & Marco Maggis & Jan Ob{l}'oj, 2016. "Pointwise Arbitrage Pricing Theory in Discrete Time," Papers 1612.07618, arXiv.org, revised Feb 2018.
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    6. Yan Dolinsky & Halil Mete Soner, 2016. "Convex Duality with Transaction Costs," Swiss Finance Institute Research Paper Series 16-71, Swiss Finance Institute.
    7. Bruno Bouchard & Marcel Nutz, 2013. "Arbitrage and duality in nondominated discrete-time models," Papers 1305.6008, arXiv.org, revised Mar 2015.
    8. Yuri Kabanov, 2009. "Markets with Transaction Costs. Mathematical Theory," Post-Print hal-00488168, HAL.
    9. Matteo Burzoni & Marco Frittelli & Marco Maggis, 2016. "Universal arbitrage aggregator in discrete-time markets under uncertainty," Finance and Stochastics, Springer, vol. 20(1), pages 1-50, January.
    10. Martin Schweizer, 1994. "Risk‐Minimizing Hedging Strategies Under Restricted Information," Mathematical Finance, Wiley Blackwell, vol. 4(4), pages 327-342, October.
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    12. Rüdiger Frey, 2000. "Risk Minimization with Incomplete Information in a Model for High‐Frequency Data," Mathematical Finance, Wiley Blackwell, vol. 10(2), pages 215-225, April.
    13. Boyle, Phelim P & Vorst, Ton, 1992. "Option Replication in Discrete Time with Transaction Costs," Journal of Finance, American Finance Association, vol. 47(1), pages 271-293, March.
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    Cited by:

    1. Peter Bank & Yan Dolinsky, 2020. "A Note on Utility Indifference Pricing with Delayed Information," Papers 2011.05023, arXiv.org, revised Mar 2021.
    2. Yan Dolinsky & Jonathan Zouari, 2017. "Market Delay and G-expectations," Papers 1709.09442, arXiv.org, revised Dec 2018.
    3. Dolinsky, Yan & Zouari, Jonathan, 2020. "Market delay and G-expectations," Stochastic Processes and their Applications, Elsevier, vol. 130(2), pages 694-707.

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