Home > Research > Publications & Outputs > Option bounds from concurrently expiring option...

Electronic data

View graph of relations

Option bounds from concurrently expiring options when relative risk aversion is bounded

Research output: Working paper

Published
NullPointerException

Abstract

In this paper we derive option bounds from concurrently expiring option prices assuming the (pricing) representative investor’s relative risk aversion is bounded. We show that given n concurrently expiring options, the option bounds are given by pricing kernels that have (n+2)-segmented piecewise constant elasticity. Closed form formulas are presented for the case where the distribution of the stock price is log-normal.