On Intermediate Marginals in Martingale Optimal Transportation
18 Pages Posted: 12 May 2020
Date Written: April 19, 2020
We study the influence of information about call option prices on model-independent price bounds for exotic derivatives obtained through martingale transport. The considered call option prices and their associated marginal distributions do not correspond to some future maturity on which the payoff of the exotic derivative depends. In this case, we characterize marginals that indicate improved price bounds as well as those that exclude any improvement. Eventually we show in numerous examples that the consideration of additional price information on vanilla options may have a considerable impact on the resultant model-independent price bounds.
Keywords: Martingale optimal transport, Additional information, Robust price bounds, Intermediate marginals
JEL Classification: C61, G11, G13
Suggested Citation: Suggested Citation