We provide general results for the dependence structure of running maxima (minima) of sets of variables in a model based on i) Markov dynamics; ii) no Granger causality; iii) cross-section dependence. At the time series level, we derive recursive formulas for running minima and maxima. These formulas enable to use a "bootstrapping" technique to recursively recover the pricing kernels of barrier options from those of the corresponding European options. We also show that the dependence formulas for running maxima (minima) are completely defined from the copula function representing dependence among levels at the terminal date. The result is applied to multivariate barrier digital products. Barrier Altiplanos are simply priced by i) bootstrapping the price of univariate barrier products; ii) evaluating a European Altiplano with these values.

U. Cherubini, S. Romagnoli (2007). The dependence structure of running maxima and minima:results and option pricing applications. s.l : s.n.

The dependence structure of running maxima and minima:results and option pricing applications

CHERUBINI, UMBERTO;ROMAGNOLI, SILVIA
2007

Abstract

We provide general results for the dependence structure of running maxima (minima) of sets of variables in a model based on i) Markov dynamics; ii) no Granger causality; iii) cross-section dependence. At the time series level, we derive recursive formulas for running minima and maxima. These formulas enable to use a "bootstrapping" technique to recursively recover the pricing kernels of barrier options from those of the corresponding European options. We also show that the dependence formulas for running maxima (minima) are completely defined from the copula function representing dependence among levels at the terminal date. The result is applied to multivariate barrier digital products. Barrier Altiplanos are simply priced by i) bootstrapping the price of univariate barrier products; ii) evaluating a European Altiplano with these values.
2007
World conference computational finance: the first decade
1
20
U. Cherubini, S. Romagnoli (2007). The dependence structure of running maxima and minima:results and option pricing applications. s.l : s.n.
U. Cherubini; S. Romagnoli
File in questo prodotto:
Eventuali allegati, non sono esposti

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/49445
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact