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Valuation Bounds on Barrier Options Under Model Uncertainty
Author(s) -
Hong Yi
Publication year - 2013
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.21545
Subject(s) - valuation (finance) , economics , actuarial science , barrier option , exotic option , valuation of options , econometrics , mathematical economics , finance
This article investigates valuation bounds on barrier options under model uncertainty. This investigation enriches the literature on the model‐free valuation of these exotic options. It is found that with weak assumptions on underlying price processes, tight valuation bounds on barrier options can be sought from a set of European options. As a result, the numerical routine developed in this article can be reviewed as a new method for the evaluation of barrier options, which is independent of model assumptions. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:199–234, 2013