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THE CONVEXITY OF OPTION PRICES AS A CRITERION OF NO-ARBITRAGE
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THE CONVEXITY OF OPTION PRICES AS A CRITERION OF NO-ARBITRAGE
Annotation
PII
S042473880000616-6-1
Publication type
Article
Status
Published
Authors
Sergey Kurochkin 
Edition
Volume 52 Issue 2
Pages
103-111
Abstract
It is necessary at any time for the market prices to satisfy certain conditions of a set of options with different strike prices on the same reference asset be arbitrage-free. Some conditions of this kind are the consequences of arbitrage-free requirement: monotonicity, Lipschitz-parameters and conxexity. We give the complete set of independent and verifiable convexity-type properties for option prices that are equivalent to the absence of arbitrage. A special version of Farkas lemma was used in the proof of the main result. This construction may be generalized to the dirivatives depending on several reference assets and/or with arbitrary piecewise linear payoff diagrams. It is proved that one may choose a finite set of functions on an option portfolio sufficient to verify the arbitrage-free requirement for this context.
Keywords
option, no-arbitrage pricing, convexity
Date of publication
01.04.2016
Number of purchasers
1
Views
1618
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0.0 (0 votes)
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