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Expensive Martingales
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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.
Title: Expensive Martingales
Description:
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.
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