Model-independent Bounds for Option Prices: A Mass Transport Approach
Mathias Beiglb\"ock, Pierre Henry-Labord\`ere, Friedrich Penkner
TL;DR
This paper develops a model-independent framework for bounding exotic option prices using mass transport theory, providing dual formulations with no duality gap, enhancing robustness in financial pricing.
Contribution
It introduces a novel mass transport approach to derive model-independent bounds for exotic options, connecting optimal transport with semi-static hedging strategies.
Findings
Established duality with no gap in the bounds
Linked mass transport theory to financial hedging
Provided a new method for model-independent option pricing
Abstract
In this paper we investigate model-independent bounds for exotic options written on a risky asset. Based on arguments from the theory of Monge-Kantorovich mass-transport we establish a dual version of the problem that has a natural financial interpretation in terms of semi-static hedging. In particular we prove that there is no duality gap.
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