Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/259942 
Authors: 
Year of Publication: 
2007
Series/Report no.: 
Working Paper No. 2007:10
Publisher: 
Lund University, School of Economics and Management, Department of Economics, Lund
Abstract: 
Financial options typically incorporate times of exercise. Alternatively, they embody set-up costs or indivisibilities. Such features lead to planning problems with integer decision variables. Provided the sample space be finite, it is shown here that integrality constraints can often be relaxed. In fact, simple mathematical programming, aimed at arbitrage or replication, may bound or identify option prices. When the asset market is incomplete, the bounds stem from nonlinear pricing functionals.
Subjects: 
asset pricing
arbitrage
options
finite sample space
scenario tree
equivalent martingale measures
bid-ask intervals
incomplete market
linear programming
combinatorial optimization
totally unimodular matrices.
JEL: 
C61
G12
Document Type: 
Working Paper

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