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Model-free price bounds under dynamic option trading

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  • Ariel Neufeld
  • Julian Sester

Abstract

In this paper we extend discrete time semi-static trading strategies by also allowing for dynamic trading in a finite amount of options, and we study the consequences for the model-independent super-replication prices of exotic derivatives. These include duality results as well as a precise characterization of pricing rules for the dynamically tradable options triggering an improvement of the price bounds for exotic derivatives in comparison with the conventional price bounds obtained through the martingale optimal transport approach.

Suggested Citation

  • Ariel Neufeld & Julian Sester, 2021. "Model-free price bounds under dynamic option trading," Papers 2101.01024, arXiv.org, revised Jul 2021.
    • Handle: RePEc:arx:papers:2101.01024
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    References listed on IDEAS

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    Cited by:

    1. Ariel Neufeld & Julian Sester, 2023. "Neural networks can detect model-free static arbitrage strategies," Papers 2306.16422, arXiv.org.
    2. Jonathan Ansari & Eva Lutkebohmert & Ariel Neufeld & Julian Sester, 2022. "Improved Robust Price Bounds for Multi-Asset Derivatives under Market-Implied Dependence Information," Papers 2204.01071, arXiv.org, revised Sep 2023.
    3. Julian Sester, 2023. "On intermediate Marginals in Martingale Optimal Transportation," Papers 2307.09710, arXiv.org, revised Nov 2023.

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