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Improved robust price bounds for multi-asset derivatives under market-implied dependence information

Author

Listed:
  • Jonathan Ansari

    (University of Freiburg)

  • Eva Lütkebohmert

    (University of Freiburg)

  • Ariel Neufeld

    (NTU Singapore)

  • Julian Sester

    (National University of Singapore)

Abstract

We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation information or derive restrictions on the set of admissible copulas that capture the inter-asset dependences. To compute the resulting price bounds for some multi-asset options of interest, we apply a modified martingale optimal transport approach. Several examples based on simulated and real market data illustrate the improvement of the obtained price bounds and thus provide evidence for the relevance and tractability of our approach.

Suggested Citation

  • Jonathan Ansari & Eva Lütkebohmert & Ariel Neufeld & Julian Sester, 2024. "Improved robust price bounds for multi-asset derivatives under market-implied dependence information," Finance and Stochastics, Springer, vol. 28(4), pages 911-964, October.
    • Handle: RePEc:spr:finsto:v:28:y:2024:i:4:d:10.1007_s00780-024-00539-z
    DOI: 10.1007/s00780-024-00539-z
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    References listed on IDEAS

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    More about this item

    Keywords

    Multi-asset options; Model-free pricing; Quasi-copulas; Correlation; Dependence information;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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