Robust Hedging of the Lookback Option

Posted: 26 Aug 1998

See all articles by David G. Hobson

David G. Hobson

University of Bath - School of Mathematical Sciences

Abstract

The aim of this article is to find bounds on the prices of exotic derivatives, and in particular the lookback option, in terms of the (market) prices of call options. This is achieved without making explicit assumptions about the dynamics of the price process of the underlying asset, but rather by inferring information about the potential distribution of asset prices from the call prices. Thus the bounds we obtain and the associated hedging strategies are model independent. The appeal and significance of the hedging strategies arises from their universality and robustness to model mis-specification.

JEL Classification: G13, D52

Suggested Citation

Hobson, David G., Robust Hedging of the Lookback Option. Available at SSRN: https://ssrn.com/abstract=114188

David G. Hobson (Contact Author)

University of Bath - School of Mathematical Sciences ( email )

Bath, BA2 7AY
United Kingdom

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