Distribution-free upper bounds for spread options and market-implied antimonotonicity gap

Peter Laurence and Wang, Tai-Ho

European Journal of Finance, 2008, vol. 14, issue 8, pages 717-734

Abstract: We derive in closed form distribution-free bounds and optimal hedging strategies for spread options. Upper bounds are obtained when the spread option's joint distribution is constrained by the prices of traded options with all available strikes of a given maturity. The difference between the upper bound and the market price is a useful new measure of codependence, which we refer to as the market implied antimonotonicity gap.

Keywords: antimonotonicity gap; arbitrage-free bounds; codependence; copula; spread options; super-replication (search for similar items in EconPapers)
Date: 2008

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Persistent link: http://EconPapers.repec.org/RePEc:taf:eurjfi:v:14:y:2008:i:8:p:717-734

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