Seminar

Model independent bounds for option pricing: a stochastic control aproach

Nizar Touzi (Ecole Polytechnique)

November 15, 2010, 12:30–14:00

Room MF 323

Fédération des Banques Françaises Seminar

Abstract

We develop a stochastic control approach for the derivation of model independent bounds for derivatives under various calibration constraints. Unlike the previous literature, our formulation seeks the optimal no arbitrage bounds given the knowledge of the distribution at some (or various) point in time. This problem is converted into a classical stochastic control problem by means of convex duality. We obtain a general characterization, and provide explicit optimal bounds in some examples.