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Risk neutral probabilities and option bounds: a geometric approach

Research output: Working paper

Published

Standard

Risk neutral probabilities and option bounds: a geometric approach. / Huang, J.

Lancaster University : The Department of Accounting and Finance, 2004. (Accounting and Finance Working Paper Series).

Research output: Working paper

Harvard

Huang, J 2004 'Risk neutral probabilities and option bounds: a geometric approach' Accounting and Finance Working Paper Series, The Department of Accounting and Finance, Lancaster University.

APA

Huang, J. (2004). Risk neutral probabilities and option bounds: a geometric approach. (Accounting and Finance Working Paper Series). The Department of Accounting and Finance.

Vancouver

Huang J. Risk neutral probabilities and option bounds: a geometric approach. Lancaster University: The Department of Accounting and Finance. 2004. (Accounting and Finance Working Paper Series).

Author

Huang, J. / Risk neutral probabilities and option bounds: a geometric approach. Lancaster University : The Department of Accounting and Finance, 2004. (Accounting and Finance Working Paper Series).

Bibtex

@techreport{cfcf35c634e64161899b36656fea6ac6,
title = "Risk neutral probabilities and option bounds: a geometric approach",
abstract = "In this paper we first present a geometric approach to option bounds. We show that if two risk neutral probability density functions intersect for certain number of times, then comparing the fatness of their tails we can tell which of them gives higher option prices. Thus we can derive option bounds by identifying the risk neutral probability density function which intersects all admissible ones for certain number of times. Applying this approach we tighten the first order stochastic dominance option bounds from concurrently expiring options when the maximum value of the risk neutral density are known.",
keywords = "Option bounds, option pricing, risk neutral density, first order stochastic dominance",
author = "J Huang",
year = "2004",
language = "English",
series = "Accounting and Finance Working Paper Series",
publisher = "The Department of Accounting and Finance",
type = "WorkingPaper",
institution = "The Department of Accounting and Finance",

}

RIS

TY - UNPB

T1 - Risk neutral probabilities and option bounds: a geometric approach

AU - Huang, J

PY - 2004

Y1 - 2004

N2 - In this paper we first present a geometric approach to option bounds. We show that if two risk neutral probability density functions intersect for certain number of times, then comparing the fatness of their tails we can tell which of them gives higher option prices. Thus we can derive option bounds by identifying the risk neutral probability density function which intersects all admissible ones for certain number of times. Applying this approach we tighten the first order stochastic dominance option bounds from concurrently expiring options when the maximum value of the risk neutral density are known.

AB - In this paper we first present a geometric approach to option bounds. We show that if two risk neutral probability density functions intersect for certain number of times, then comparing the fatness of their tails we can tell which of them gives higher option prices. Thus we can derive option bounds by identifying the risk neutral probability density function which intersects all admissible ones for certain number of times. Applying this approach we tighten the first order stochastic dominance option bounds from concurrently expiring options when the maximum value of the risk neutral density are known.

KW - Option bounds

KW - option pricing

KW - risk neutral density

KW - first order stochastic dominance

M3 - Working paper

T3 - Accounting and Finance Working Paper Series

BT - Risk neutral probabilities and option bounds: a geometric approach

PB - The Department of Accounting and Finance

CY - Lancaster University

ER -