Improved Robust Price Bounds for Multi-Asset Derivatives under Market-Implied Dependence Information

Jonathan Ansari, Eva L\"utkebohmert, Ariel Neufeld and Julian Sester

Papers from arXiv.org

Abstract: We show how inter-asset dependence information derived from market prices of options can lead to improved model-free price bounds for multi-asset derivatives. Depending on the type of the traded option, we either extract correlation information or we derive restrictions on the set of admissible copulas that capture the inter-asset dependencies. To compute the resultant price bounds for some multi-asset options of interest, we apply a modified martingale optimal transport approach. Several examples based on simulated and real market data illustrate the improvement of the obtained price bounds and thus provide evidence for the relevance and tractability of our approach.

Date: 2022-04, Revised 2023-09
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