The interpolation of options
type: Item
instance of: scholarly article
title: The interpolation of options
zbMATH Open document ID: 1035.60071
author: Per Aslak Mykland
published in: Finance and Stochastics
publication date: 2004-03-16T00:00:00Z
review text: Conservative data hedging provides device for passing from nonparametric bounds on cumulative interest rates to hedging strategies for options. The resulting strategies in turn provide intervals for the value of options. Such intervals can often be uncomfortably wide, therefore useless. The purpose of this paper is to show how one can reduce this problem by involving auxiliary securities, in particular, market traded options on zero coupon bonds. As a concise illustration, it is shown how to interpolate call options. This interpolation lowers the upper interval level for vanilla or exotic option. The interpolation algorithm developed in the paper substantially reduces the length of intervals for prices that are generated under uncertainty in the predicted volatility and interest rates.
Mathematics Subject Classification ID: 60H30
Mathematics Subject Classification ID: 60G44
Mathematics Subject Classification ID: 60F05
Mathematics Subject Classification ID: 62F03
Mathematics Subject Classification ID: 62P05
Mathematics Subject Classification ID: 91G20
zbMATH DE Number: 2059110
zbMATH Keywords: conservative data hedging
zbMATH Keywords: incompleteness
zbMATH Keywords: statistical uncertainty
zbMATH Keywords: value at risk
reviewed by: Yuliya S. Mishura
MaRDI profile type: Publication
full work available at URL: s007800200093
OpenAlex ID: W2088673403
DOI: 10.1007/S007800200093
description: scientific article; zbMATH DE number 2059110