Option Bounds

Posted: 17 Sep 2012

See all articles by Victor H. de la Pena

Victor H. de la Pena

Columbia University - Department of Statistics

Rustam Ibragimov

Harvard University - Department of Economics

Steven J. Jordan

Econometric Solutions

Multiple version iconThere are 2 versions of this paper

Date Written: January 17, 2002

Abstract

In this paper, we obtain sharp estimates for the expected payoffs and prices of European call options on an asset with an absolutely continuous price in terms of the price density characteristics. These techniques and results complement other approaches to the derivative pricing problem. Exact analytical solutions to option-pricing problems and to Monte-Carlo techniques make strong assumptions on the underlying asset's distribution. In contrast, our results are semi-parametric. This allows the derivation of results without knowing the entire distribution of the underlying asset's returns. Our results can be used to test different modelling assumptions. Finally, we derive bounds in the multiperiod binomial option-pricing model with time-varying moments. Our bounds reduce the multiperiod setup to a two-period setting, which is advantageous from a computational perspective.

Keywords: Option pricing, semi-parametric, bounds, binomial, time varying, moments, multiperiod

Suggested Citation

de la Pena, Victor H. and Ibragimov, Rustam and Jordan, Steven J., Option Bounds (January 17, 2002). Journal of Applied Probability, Vol. 41, p. 145, 2004, Available at SSRN: https://ssrn.com/abstract=2147844

Victor H. De la Pena (Contact Author)

Columbia University - Department of Statistics ( email )

Mail Code 4403
New York, NY 10027
United States

Rustam Ibragimov

Harvard University - Department of Economics ( email )

Littauer Center
1805 Cambridge St.
Cambridge, MA 02138
United States
617-496-4795 (Phone)
617-495-7730 (Fax)

HOME PAGE: http://www.economics.harvard.edu/faculty/ibragimov/ibragimov.html

Steven J. Jordan

Econometric Solutions ( email )

3520 Fossil Park Dr.
Fort Worth, TX NA 76137
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
643
PlumX Metrics