Model-independent bounds for Asian options: A dynamic programming approach

Alexander Cox, Sigrid Källblad

Research output: Contribution to journalArticle

5 Citations (Scopus)
38 Downloads (Pure)

Abstract

We consider the problem of finding model-independent bounds on the price of an Asian option, when the call prices at the maturity date of the option are known. Our methods differ from most approaches to model-independent pricing in that we consider the problem as a dynamic programming problem, where the controlled process is the conditional distribution of the asset at the maturity date. By formulating the problem in this manner, we are able to determine the model-independent price through a PDE formulation. Notably, this approach does not require specific constraints on the payoff function (e.g. convexity), and would appear to generalise to many related problems.
Original languageEnglish
Pages (from-to)3409–3436
Number of pages28
JournalSIAM Journal on Control and Optimization
Volume55
Issue number6
Early online date2 Nov 2017
DOIs
Publication statusPublished - 31 Dec 2017

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