Improved robust price bounds for multi-asset derivatives under market-implied dependence information

Jonathan Ansari; Eva Lütkebohmert; Ariel Neufeld; Julian Sester

doi:10.1007/s00780-024-00539-z

Improved robust price bounds for multi-asset derivatives under market-implied dependence information

Jonathan Ansari, Eva Lütkebohmert, Ariel Neufeld^*, Julian Sester

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

Abstract

We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation information or derive restrictions on the set of admissible copulas that capture the inter-asset dependences. To compute the resulting price bounds for some multi-asset options of interest, we apply a modified martingale optimal transport approach. Several examples based on simulated and real market data illustrate the improvement of the obtained price bounds and thus provide evidence for the relevance and tractability of our approach.

Original language	English
Pages (from-to)	911-964
Number of pages	54
Journal	Finance and Stochastics
Volume	28
Issue number	4
DOIs	https://doi.org/10.1007/s00780-024-00539-z
Publication status	Published - Oct 2024
Externally published	Yes

Bibliographical note

Publisher Copyright:
© The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2024.

ASJC Scopus Subject Areas

Statistics and Probability
Finance
Statistics, Probability and Uncertainty

Keywords

60E15
91G20
91G80
C61
Correlation
Dependence information
G11
G13
Model-free pricing
Multi-asset options
Quasi-copulas

Access to Document

10.1007/s00780-024-00539-z

Cite this

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abstract = "We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation information or derive restrictions on the set of admissible copulas that capture the inter-asset dependences. To compute the resulting price bounds for some multi-asset options of interest, we apply a modified martingale optimal transport approach. Several examples based on simulated and real market data illustrate the improvement of the obtained price bounds and thus provide evidence for the relevance and tractability of our approach.",

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AU - Lütkebohmert, Eva

AU - Neufeld, Ariel

AU - Sester, Julian

N1 - Publisher Copyright: © The Author(s), under exclusive licence to Springer-Verlag GmbH Germany, part of Springer Nature 2024.

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Improved robust price bounds for multi-asset derivatives under market-implied dependence information

Abstract

Bibliographical note

ASJC Scopus Subject Areas

Keywords

Access to Document

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