The range of traded option prices
Davis, Mark H. A. and Hobson, David (David G.). (2007) The range of traded option prices. Mathematical Finance, Volume 17 (Number 1). pp. 1-14. ISSN 0960-1627Full text not available from this repository.
Suppose we are given a set of prices of European call options over a finite range of strike prices and exercise times, written on a financial asset with deterministic dividends which is traded in a frictionless market with no interest rate volatility. We ask: when is there an arbitrage opportunity? We give conditions for the prices to be consistent with an arbitrage-free model (in which case the model can be realized on a finite probability space). We also give conditions for there to exist an arbitrage opportunity which can be locked in at time zero. There is also a third boundary case in which prices are recognizably misspecified, but the ability to take advantage of an arbitrage opportunity depends upon knowledge of the null sets of the model.
|Item Type:||Journal Article|
|Subjects:||H Social Sciences > HG Finance
H Social Sciences > HC Economic History and Conditions
Q Science > QA Mathematics
H Social Sciences
|Divisions:||Faculty of Science > Statistics|
|Journal or Publication Title:||Mathematical Finance|
|Publisher:||Wiley-Blackwell Publishing, Inc.|
|Official Date:||January 2007|
|Number of Pages:||14|
|Page Range:||pp. 1-14|
|Access rights to Published version:||Restricted or Subscription Access|
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