A High-Level Framework for Practically Model-Independent Pricing

TL;DR

This paper introduces a practical, model-independent pricing framework for exotic derivatives that integrates with existing Monte Carlo systems, providing narrow price bands and aligning industry practice with academic robustness.

Contribution

It presents a high-level, implementable framework combining path reweighting and conic optimisation, enabling model-independent valuation without altering existing infrastructure.

Findings

Produces narrow, practical price bands for exotics.

Aligns industry practices with theoretical model-independent approaches.

Integrates seamlessly with current Monte Carlo systems.

Abstract

We present a high-level framework that explains why, in practice, different pricing models calibrated to the same vanilla surface tend to produce similar valuations for exotic derivatives. Our approach acts as an overlay on the Monte Carlo infrastructure already used in banks, combining path reweighting with a conic optimisation layer without requiring any changes to existing code. This construction delivers narrow, practically model-independent price bands for exotics, reconciling front-office practice with the robust, model-independent ideas developed in the academic literature.