MODEL-INDEPENDENT BOUNDS FOR OPTION PRICES: A MASS TRANSPORT APPROACH

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Stochastic processes and financial applications Geometric Analysis and Curvature Flows Risk and Portfolio Optimization

Abstract

Abstract. In this paper we investigate model-independent bounds for exotic options written on a risky asset us-ing infinite-dimensional linear programming methods. Using arguments from the theory of Monge-Kantorovich mass-transport we establish a dual version of the problem that has a natural financial interpretation in terms of semi-static hedging. In particular we prove that there is no duality gap.

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