Expensive martingales
Author:
Hans Buehler ab
| Affiliations: | a Quantitative Products Analytics, Global Markets Equity, Deutsche Bank AG London, London EC2N 2EQ, UK |
b Institut f r Mathematik, 10623 Berlin, Germany |
DOI:
10.1080/14697680600668071
Publication Frequency:
8 issues per year
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Abstract
We characterize strictly arbitrage-free markets of European options where only a discrete set of options is traded. We then construct martingales which reprice all given options and which are 'most expensive' among all martingales with this property. We also present algorithms to adjust real-life market data and to construct expensive martingales while taking into account additional 'weak' information: estimated prices of more exotic products such as, for example, forward started options.
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| Keywords: Marginal distribution; Transition kernel; Forward start options; Arbitrage |
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r Mathematik, 10623 Berlin, Germany
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