Option Pricing and Hedging Bounds in Incomplete Markets

Tao Hao

Research Reports from Watson Wyatt Worldwide

Abstract: This paper has reviewed the literature on options pricing in incomplete markets. A tight upper and lower bounds can be derived based on the assumptions of mean and variance of the underlying asset price, not on its entire distribution. The differences between estimated upper or lower bounds and Black-Scholes price are quite small for deep in-the-money options, but can be very significant for deep out-of-the-money options. But at the same time, despite the wide pricing bounds, analysis of the implied hedging bounds suggests that the implications for asset allocation of incomplete markets are fairly limited.

References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.watsonwyatt.com/repecarticle/OptionPricing.pdf
Our link check indicates that this URL is bad, the error code is: 500 Can't connect to www.watsonwyatt.com:80 (No such host is known. )

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:www:resrep:5

Access Statistics for this paper

More papers in Research Reports from Watson Wyatt Worldwide
Bibliographic data for series maintained by Watson Wyatt ().