Abstract
We price various financial instruments, which are classified as exotic options, using the regret bounds of an online algorithm. In addition, we derive a general result, which upper bounds the price of any derivative whose payoff is a convex function of the final asset price. The market model used is adversarial, making our price bounds robust. Our results extend the work of [9], which used regret minimization to price the standard European call option, and demonstrate the applicability of regret minimization to derivative pricing.
This research was supported in part by the Google Inter-university center for Electronic Markets and Auctions, by a grant from the Israel Science Foundation, by a grant from United States-Israel Binational Science Foundation (BSF), and by a grant from the Israeli Ministry of Science (MoS). This work is part of Ph.D. thesis research carried out by the first author at Tel Aviv University.
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Gofer, E., Mansour, Y. (2011). Pricing Exotic Derivatives Using Regret Minimization. In: Persiano, G. (eds) Algorithmic Game Theory. SAGT 2011. Lecture Notes in Computer Science, vol 6982. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-24829-0_24
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DOI: https://doi.org/10.1007/978-3-642-24829-0_24
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