Financial options typically incorporate times of exercise. Alternatively, they embody set-up costs or indivisibilities. Such features lead to planning problems with integer decision variables. Provided the sample space be finite, it is shown here that integrality constraints can often be relaxed. In fact, simple mathematical programming, aimed at arbitrage or replication, may bound or identify option prices. When the asset market is incomplete, the bounds stem from nonlinear pricing functionals.
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Paper provided by Lund University, Department of Economics in its series Working Papers with number
2007:10.
Length: 20 pages Date of creation: 04 Jun 2007 Date of revision: Handle: RePEc:hhs:lunewp:2007_010
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