A model-free no-arbitrage price bound for variance options
In the framework of Galichon, Henry-Labordère and Touzi, we consider the model-free no-arbitrage bound of variance option given the marginal distributions of the underlying asset. We first make some approximations which restrict the computation on a bounded domain. Then we propose a gradient projection algorithm together with a finite difference scheme to approximate the bound. The general convergence result is obtained. We also provide a numerical example on the variance swap option.
|Date of creation:||04 Jul 2013|
|Publication status:||Published in Applied Mathematics and Optimization, Springer Verlag (Germany), 2013, 68 (1), pp.43-73. <10.1007/s00245-013-9197-1>|
|Note:||View the original document on HAL open archive server: https://hal.inria.fr/inria-00634387|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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- Peter Carr & Roger Lee, 2010. "Hedging variance options on continuous semimartingales," Finance and Stochastics, Springer, vol. 14(2), pages 179-207, April.
- David G. Hobson, 1998. "Robust hedging of the lookback option," Finance and Stochastics, Springer, vol. 2(4), pages 329-347.
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