On the Lower Arbitrage Bound of American Contingent Claims

9 Pages Posted: 13 Dec 2013

See all articles by Beatrice Acciaio

Beatrice Acciaio

University of Vienna

Gregor Svindland

Leibniz Universität Hannover

Date Written: January 2014

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

Suggested Citation

Acciaio, Beatrice and Svindland, Gregor, On the Lower Arbitrage Bound of American Contingent Claims (January 2014). Mathematical Finance, Vol. 24, Issue 1, pp. 147-155, 2014, Available at SSRN: https://ssrn.com/abstract=2367077 or http://dx.doi.org/10.1111/j.1467-9965.2012.00519.x

Beatrice Acciaio (Contact Author)

University of Vienna ( email )

Bruenner Strasse 72
Vienna, Vienna 1090
Austria

Gregor Svindland

Leibniz Universität Hannover ( email )

Germany

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