On the Lower Arbitrage Bound of American Contingent Claims

13 Pages Posted: 27 May 2011

See all articles by Beatrice Acciaio

Beatrice Acciaio

University of Vienna

Gregor Svindland

Leibniz Universit├Ąt Hannover

Date Written: March 2011

Abstract

We prove that in a discrete-time market model the lower arbitrage bound of an American contingent claim is itself an arbitrage-free price if and only if it corresponds to the price of the claim optimally exercised under some equivalent martingale measure.

Keywords: American contingent claim, arbitrage-free price, Snell envelope

JEL Classification: C02, G12

Suggested Citation

Acciaio, Beatrice and Svindland, Gregor, On the Lower Arbitrage Bound of American Contingent Claims (March 2011). Available at SSRN: https://ssrn.com/abstract=1852323 or http://dx.doi.org/10.2139/ssrn.1852323

Beatrice Acciaio

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Gregor Svindland (Contact Author)

Leibniz Universit├Ąt Hannover ( email )

Germany

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