Robust bounds for the American Put
Mathematical Finance
2018-05-23 v2
Abstract
We consider the problem of finding a model-free upper bound on the price of an American put given the prices of a family of European puts on the same underlying asset. Specifically we assume that the American put must be exercised at either or and that we know the prices of all vanilla European puts with these maturities. In this setting we find a model which is consistent with European put prices and an associated exercise time, for which the price of the American put is maximal. Moreover we derive a cheapest superhedge. The model associated with the highest price of the American put is constructed from the left-curtain martingale transport of Beiglb\"{o}ck and Juillet.
Cite
@article{arxiv.1711.06466,
title = {Robust bounds for the American Put},
author = {David Hobson and Dominykas Norgilas},
journal= {arXiv preprint arXiv:1711.06466},
year = {2018}
}
Comments
31 pages, 14 figures