Article thumbnail

Bounding Option Prices by Semidefinite Programming: A Cutting Plane Algorithm

By Jun-ya Gotoh and Hiroshi Konno

Abstract

In a recent article, Bertsimas and Popescu showed that a tight upper bound on a Europeantype call option price, given the first n moments of the distribution of the underlying security price, can be obtained by solving an associated semidefinite programming problem (SDP). The purpose of this paper is to improve and extend their results. We will show that a tight lower bound can be calculated by solving another SDP. Also, we will show that these problems can be solved very quickly by a newly developed cutting plane algorithm when n is less than six or seven.bounds on option prices, semidefinite programming problem, cutting plane algorithm

DOI identifier: 10.1287/mnsc.48.5.665.7801
OAI identifier:
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://dx.doi.org/10.1287/mnsc... (external link)

  • To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.

    Suggested articles