You are not currently logged in.
Access JSTOR through your library or other institution:
If You Use a Screen ReaderThis content is available through Read Online (Free) program, which relies on page scans. Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Volatility Misspecification, Option Pricing and Superreplication via Coupling
David G. Hobson
The Annals of Applied Probability
Vol. 8, No. 1 (Feb., 1998), pp. 193-205
Published by: Institute of Mathematical Statistics
Stable URL: http://www.jstor.org/stable/2667242
Page Count: 13
You can always find the topics here!Topics: Prices, Mathematical monotonicity, Martingales, Market prices, Brownian motion, Pricing, American option, Finance, Pricing strategies, European option
Were these topics helpful?See somethings inaccurate? Let us know!
Select the topics that are inaccurate.
Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Preview not available
Consider the performance of an options writer who misspecifies the dynamics of the price process of the underlying asset by overestimating asset price volatility. When does he overprice the option? If he follows the hedging strategy suggested by his model, when does the terminal value of his strategy dominate the option payout? We show that both these events happen if the option payoff is a convex function of the price of the underlying at maturity. The proofs involve the simple, powerful and intuitive techniques of coupling.
The Annals of Applied Probability © 1998 Institute of Mathematical Statistics