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

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.

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Year of publication:	2008
Authors:	Laurence, Peter ; Wang, Tai-Ho
Published in:	The European Journal of Finance. - Taylor & Francis Journals, ISSN 1351-847X. - Vol. 14.2008, 8, p. 717-734
Publisher:	Taylor & Francis Journals
Subject:	antimonotonicity gap \| arbitrage-free bounds \| codependence \| copula \| spread options \| super-replication

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

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