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Option prices with call prices

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  • Lauri Viitasaari

Abstract

There exist several methods how more general options can be priced with call prices. In this article, we extend these results to cover a wider class of options and market models. In particular, we introduce a new pricing formula which can be used to price more general options if prices for call options and digital options are known for every strike price. Moreover, we derive similar results for barrier type options. As a consequence, we obtain a static hedging for general options in the general class of models. Our result can be utilised in several significant applications. As a simple example, we derive an upper bound for the value of a general American option with convex payoff and characterise conditions under which the value of this option equals to the value of the corresponding European option.

Suggested Citation

  • Lauri Viitasaari, 2012. "Option prices with call prices," Papers 1207.6205, arXiv.org, revised Aug 2012.
  • Handle: RePEc:arx:papers:1207.6205
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    File URL: http://arxiv.org/pdf/1207.6205
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    Cited by:

    1. Jarno Talponen & Lauri Viitasaari, 2014. "Multidimensional Breeden-Litzenberger representation for state price densities and static hedging," Papers 1401.6383, arXiv.org.

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