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| Author: | Ritchken, P. Kuo, S. |
| Title: | On stochastic dominance and decreasing absolute risk averse option pricing bounds. |
| Journal: | Management Science
1989 : JAN, VOL. 35:1, p. 51-59 |
| Index terms: | OPTIONS LINEAR PROGRAMMING |
| Language: | eng |
| Abstract: | Option pricing bounds are established under first and second stochastic dominance preferences. These bounds are particularly important for valuing contingent claims when continuous trading in the claim and underlying security does not exist. Provided are option bounds under higher orders of dominance. Specifically, option bounds are obtained by solving mathematical programs where preference structures on prices are represented by constraints. For first, second, third and higher orders of stochastic dominance preferences, the special linear structure of the mathematical programs allow analytical solutions to be obtained for the bounds. |
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