Static Arbitrage Bounds on Basket Option Prices
TITLE: Static Arbitrage Bounds on Basket Option Prices
AUTHORS: Alexandre d'Aspremont, Laurent El Ghaoui
ABSTRACT: We consider the problem of computing upper and lower bounds on the price of
a European basket call option, given prices on other similar baskets. Although this
problem is very hard to solve exactly in the general case, we show that in some instances
the upper and lower bounds can be computed via simple closedform expressions, or
linear programs. We also introduce an efficient linear programming relaxation of the
general problem based on an integral transform interpretation of the call price function.
We show that this relaxation is tight in some of the special cases examined before.
STATUS: Mathematical Programming 106(3), pp. 467489.
ArXiv PREPRINT: math.OC/0302243
PAPER: Static Arbitrage Bounds on Basket Option Prices in pdf
