کد مقاله | کد نشریه | سال انتشار | مقاله انگلیسی | نسخه تمام متن |
---|---|---|---|---|
480324 | 1446070 | 2012 | 8 صفحه PDF | دانلود رایگان |
![عکس صفحه اول مقاله: Computing arbitrage upper bounds on basket options in the presence of bid–ask spreads Computing arbitrage upper bounds on basket options in the presence of bid–ask spreads](/preview/png/480324.png)
We study the problem of computing the sharpest static-arbitrage upper bound on the price of a European basket option, given the bid–ask prices of vanilla call options in the underlying securities. We show that this semi-infinite problem can be recast as a linear program whose size is linear in the input data size. These developments advance previous related results, and enhance the practical value of static-arbitrage bounds as a pricing technique by taking into account the presence of bid–ask spreads. We illustrate our results by computing upper bounds on the price of a DJX basket option. The MATLAB code used to compute these bounds is available online at www.andrew.cmu.edu/user/jfp/arbitragebounds.html.
► We consider the problem of pricing basket options under incomplete market conditions.
► Market information is given by prices of vanilla options on the underlying assets.
► The corresponding static-arbitrage upper bound problem is reformulated as an LP.
► This allows us to take into account bid–ask spreads in the option-pricing problem.
Journal: European Journal of Operational Research - Volume 222, Issue 2, 16 October 2012, Pages 369–376