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On intermediate marginals in martingale optimal transportation

Author

Listed:
  • Julian Sester

    (National University of Singapore)

Abstract

We study the influence of additional intermediate marginal distributions on the value of the martingale optimal transport problem. From a financial point of view, this corresponds to taking into account call option prices not only, as usual, for those call options where the respective future maturities coincide with the maturities of some exotic derivative but also additional maturities and then to study the effect on model-independent price bounds for the exotic derivative. We characterize market settings, i.e., combinations of the payoff of exotic derivatives, call option prices and marginal distributions that guarantee improved price bounds as well as those market settings that exclude any improvement. Eventually, we showcase in numerous examples that the consideration of additional price information on vanilla options may have a considerable impact on the resultant model-independent price bounds.

Suggested Citation

  • Julian Sester, 2023. "On intermediate marginals in martingale optimal transportation," Mathematics and Financial Economics, Springer, volume 17, number 2, June.
    • Handle: RePEc:spr:mathfi:v:17:y:2023:i:4:d:10.1007_s11579-023-00345-9
    DOI: 10.1007/s11579-023-00345-9
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    More about this item

    Keywords

    Martingale optimal transport; Additional information; Robust price bounds; Intermediate marginals;
    All these keywords.

    JEL classification:

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

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