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arxiv: 1711.06466 · v2 · pith:7ETWJX7Dnew · submitted 2017-11-17 · 💱 q-fin.MF

Robust bounds for the American Put

classification 💱 q-fin.MF
keywords americaneuropeanpricepricesassociatedmodelputsasset
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We consider the problem of finding a model-free upper bound on the price of an American put given the prices of a family of European puts on the same underlying asset. Specifically we assume that the American put must be exercised at either $T_1$ or $T_2$ and that we know the prices of all vanilla European puts with these maturities. In this setting we find a model which is consistent with European put prices and an associated exercise time, for which the price of the American put is maximal. Moreover we derive a cheapest superhedge. The model associated with the highest price of the American put is constructed from the left-curtain martingale transport of Beiglb\"{o}ck and Juillet.

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