Price Comparison Results and Super-replication: An Application to Passport Options

نویسنده

  • Vicky Henderson
چکیده

In this paper, we provide a new proof of the result that option prices are increasing in volatility when the underlying is a diffusion process. This has been shown to hold for convex payoff, path-independent options by El Karoui et al [7], Hobson [12] amongst others. The advantage of the new proof is that it can be extended to establish monotonicity results for path-dependent payoffs where the payoff depends on the maximum (or minimum) of the asset price process. The techniques used to prove each of these results are mean comparison theorems of Hajek [9] and coupling of stochastic processes. Using these results, and the connection between passport and lookback options, we prove that the price of a passport option is increasing in volatility for general diffusion models for the asset price. It is shown that the seller of a passport option can super-replicate if the volatility is overestimated, regardless of the strategy followed by the holder.

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

منابع مشابه

Hedging of game options under model uncertainty in discrete time

We introduce a setup of model uncertainty in discrete time. In this setup we derive dual expressions for the super–replication prices of game options with upper semicontinuous payoffs. We show that the super–replication price is equal to the supremum over a special (non dominated) set of martingale measures, of the corresponding Dynkin games values. This type of results is also new for American...

متن کامل

Superreplication of Financial Derivatives via Convex Programming

We give a method based on convex programming to calculate the optimal super-replicating and sub-replicating prices and corresponding hedging strategies of a financial derivative in terms of other financial derivatives. Our method finds a model that matches the superreplicating (or sub-replicating) price within an arbitrary precision and is consistent with the other financial derivatives prices....

متن کامل

Computing optimal subsidies for Iranian renewable energy investments using real options

For the valuation of the renewable energy investments, providing private investors with a financial incentive to accelerate their investment is a very significant issue. Financial subsidies are known by the majority of the people to be one of the most important drivers in renewable energy expansion and one of the main reasons which result in the development of any industry. In this paper, we pr...

متن کامل

Stochastic Optimal Control in Finance

Preface These are the extended version of the Cattedra Galileiana I gave in April 2003 in Scuola Normale, Pisa. I am grateful to the Society of Amici della Scuola Normale for the funding and to Professors Maurizio Pratelli, Marzia De Donno and Paulo Guasoni for organizing these lectures and their hospitality. In these notes, I give a very quick introduction to stochastic optimal control and the...

متن کامل

On the Super Replication Price of Unbounded Claims

In an incomplete market the price of a claim f in general cannot be uniquely identified by no arbitrage arguments. However, the “classical” super replication price is a sensible indicator of the (maximum selling) value of the claim. When f satisfies certain pointwise conditions (e.g., f is bounded from below), the super replication price is equal to supQ EQ[f ], where Q varies on the whole set ...

متن کامل

ذخیره در منابع من


  با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

عنوان ژورنال:

دوره   شماره 

صفحات  -

تاریخ انتشار 2000