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Alternative Methods for Determining Option Bounds: A Review and Comparison

In: HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING

Author

Listed:
  • Cheng Few Lee
  • Zhaodong Zhong
  • Tzu Tai
  • Hongwei Chuang

Abstract

This paper first reviews alternative methods for determining option bounds. This method includes Stochastic dominance, linear programming, semi-parametric method, and non-parametric method for European option. Then option bounds for American and Asian options are discussed. Finally, we discuss empirical applications in equities and equity indices, index futures, foreign exchange rates, and real options.

Suggested Citation

  • Cheng Few Lee & Zhaodong Zhong & Tzu Tai & Hongwei Chuang, 2020. "Alternative Methods for Determining Option Bounds: A Review and Comparison," World Scientific Book Chapters, in: Cheng Few Lee & John C Lee (ed.), HANDBOOK OF FINANCIAL ECONOMETRICS, MATHEMATICS, STATISTICS, AND MACHINE LEARNING, chapter 24, pages 917-945, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811202391_0024
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    Keywords

    Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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