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Expensive Martingales


Hans Buehler


JP Morgan Chase, London; Technical University of Berlin - Institut fur Mathematik

Quantitative Finance, Vol. 6, No. 3, June 2006

Abstract:     
We characterize strictly arbitrage-free markets of European options where only a discrete set of options is traded. We then construct martingales which reprice all given options and which are most expensive among all martingales with this property.

We also present algorithms to adjust real life market data and to construct expensive martingales while taking into account additional weak information: Estimated prices of more exotic products such as, for example, forward started options.

Number of Pages in PDF File: 25

Keywords: Marginals, Martingale, Transition Probability, Balayage, Linear Programming, Discrete Pricing, Measures, Forward Started Options, European Options

JEL Classification: C60

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Date posted: June 7, 2008  

Suggested Citation

Buehler, Hans, Expensive Martingales. Quantitative Finance, Vol. 6, No. 3, June 2006. Available at SSRN: http://ssrn.com/abstract=1118246

Contact Information

Hans Buehler (Contact Author)
JP Morgan Chase, London ( email )
EDG QR 2/F
2 Aldermanbury
London, EC2V 7RF
United Kingdom
HOME PAGE: http://www.jpmorgan.com
Technical University of Berlin - Institut fur Mathematik ( email )
Institut fur Mathematik, Sekr. MA 6-1
Strasse des 17. Juni 136
Berlin, 10623
Germany
HOME PAGE: http://www.math.tu-berlin.de/~buehler
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