Electronic Resource
Springer
Review of derivatives research
4 (2000), S. 155-188
ISSN:
1573-7144
Keywords:
contingent pricing
;
option pricing
;
option bounds
;
arbitrage
;
linear programming
Source:
Springer Online Journal Archives 1860-2000
Topics:
Economics
Notes:
Abstract Optionbounds are determined by state discount factors limited by pricesof a riskless bond and the underlying asset. Usually the assethas at least two market-traded options for each maturity, furtherlimiting the factors. Tighter bounds result from incorporatingthe prices of all existing options of the same maturity. Thetightened bounds are particularly applicable to appraising theconsistency of all options trading on a single underlying security,notably index options. Constructed examples indicate a potentialimprovement of eighty percent in bound width; index data revealsa lower reduction, but extensive arbitrage opportunities fromviolations of the tighter bounds.
Type of Medium:
Electronic Resource
URL:
http://dx.doi.org/10.1023/A:1009642309978
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