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| Author: | Gotoh, J.-y. Konno, H. |
| Title: | Bounding Option Prices by Semidefinite Programming: A Cutting Plane Algorithm |
| Journal: | Management Science
2002 : MAY, VOL. 48:5, p. 665-678 |
| Index terms: | OPTIONS OPTION PRICES ALGORITHMS |
| Language: | eng |
| Abstract: | In a recent article, Bertsimas and Popescu showed that a tight upper bound on a European-type call option price, given the first n moments of the distribution of the underlying security price, can be obtained by solving an associated semidefinite programming problem (SDP). The authors of the article state that the purpose of this paper is to improve and extend their results. The authors will show that a tight lower bound can be calculated by solving another SDP. Also, the authors will show that these problems can be solved very quickly by a newly developed cutting plane algorithm when n is less than six or seven. |
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