English, Article edition: CALIBRATED OPTION BOUNDS ALAN J. KING; MATTI KOIVU; TEEMU PENNANEN

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Physical Description
  • article
Language
  • English

Edition details

Title
  • CALIBRATED OPTION BOUNDS
Author
  • ALAN J. KING
  • MATTI KOIVU
  • TEEMU PENNANEN
Physical Description
  • article
Notes
  • This paper proposes a numerical approach for computing bounds for the arbitrage-free prices of an option when some options are available for trading. Convex duality reveals a close relationship with recently proposed calibration techniques and implied trees. Our approach is intimately related to the uncertain volatility model of Avellaneda, Levy and Parás, but it is more general in that it is not based on any particular form of the asset price process and does not require the seller's price of an option to be a differentiable function of the cash-flows of the option. Numerical tests on S&​P500 options demonstrate the accuracy and robustness of the proposed method.
  • Options, pricing, calibration, convex optimization
  • RePEc:wsi:ijtafx:v:08:y:2005:i:02:p:141-159
Language
  • English
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