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Model-independent Bounds for Option Prices: A Mass Transport Approach

  • Mathias Beiglb\"ock
  • Pierre Henry-Labord\`ere
  • Friedrich Penkner
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    In this paper we investigate model-independent bounds for exotic options written on a risky asset. Based on arguments from the theory of Monge-Kantorovich mass-transport we establish a dual version of the problem that has a natural financial interpretation in terms of semi-static hedging. In particular we prove that there is no duality gap.

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    File URL: http://arxiv.org/pdf/1106.5929
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    Paper provided by arXiv.org in its series Papers with number 1106.5929.

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    Date of creation: Jun 2011
    Date of revision: Feb 2013
    Handle: RePEc:arx:papers:1106.5929
    Contact details of provider: Web page: http://arxiv.org/

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    1. Hobson, David & Laurence, Peter & Wang, Tai-Ho, 2005. "Static-arbitrage optimal subreplicating strategies for basket options," Insurance: Mathematics and Economics, Elsevier, vol. 37(3), pages 553-572, December.
    2. Chen, X. & Deelstra, G. & Dhaene, J. & Vanmaele, M., 2008. "Static super-replicating strategies for a class of exotic options," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 1067-1085, June.
    3. David Hobson & Peter Laurence & Tai-Ho Wang, 2005. "Static-arbitrage upper bounds for the prices of basket options," Quantitative Finance, Taylor & Francis Journals, vol. 5(4), pages 329-342.
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