S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
Department of Economics, Lund University Working Papers, Department of Economics, Lund University

No 2007:10:
Option Pricing by Mathematical Programming

Sjur Flåm ()

Abstract: Financial options typically incorporate times of exercise. Alternatively, they embody set-up costs or indivisibilities. Such features lead to planning problems with integer decision variables. Provided the sample space be finite, it is shown here that integrality constraints can often be relaxed. In fact, simple mathematical programming, aimed at arbitrage or replication, may bound or identify option prices. When the asset market is incomplete, the bounds stem from nonlinear pricing functionals.

Keywords: asset pricing; arbitrage; options; finite sample space; scenario tree; equivalent martingale measures; bid-ask intervals; incomplete market; linear programming; combinatorial optimization; totally unimodular matrices.; (follow links to similar papers)

JEL-Codes: C61; G12; (follow links to similar papers)

20 pages, June 4, 2007

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

WP07_10.pdf    PDF-file
Download Statistics

Questions (including download problems) about the papers in this series should be directed to David Edgerton ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:lunewp:2007_010 This page was generated on 2014-12-14 19:24:55