Index Options: A Model-Free Approach

55 Pages Posted: 28 Mar 2012 Last revised: 3 Apr 2012

See all articles by Daniël Linders

Daniël Linders

University of Illinois

Jan Dhaene

Katholieke Universiteit Leuven

Hippolyte Hounnon

Université d'Abomey-Calavi (UAC)

Michèle Vanmaele

Ghent University - Department of Applied Mathematics, Computer Science and Statistics

Multiple version iconThere are 2 versions of this paper

Date Written: April 3, 2012

Abstract

This paper contains an overview and an extension of the theory on comonotonicity-based model-free upper bounds and super-replicating strategies for stock index options, as presented in Hobson et al. (2005) and Chen et al. (2008). Whereas these authors only consider index call options, here a uni…ed approach for call and put options is presented. Considering a unifi…ed framework gives rise to an efficient algorithm for calculating upper bounds and for determining the corresponding superhedging strategies for both cases. The uni…ed framework also allows to extend several existing results, in particular on the optimality of the superhedging strategies. Several practical issues concerning the implementation of the results are discussed. In particular, a simpli…fied algorithm is presented for the situation where for some of the constituent stock in the index there are no options available.

Keywords: index call and put options, comonotonicity, model-free approach, static super-replicating strategies

Suggested Citation

Linders, Daniël and Dhaene, Jan and Hounnon, Hippolyte and Vanmaele, Michèle, Index Options: A Model-Free Approach (April 3, 2012). Available at SSRN: https://ssrn.com/abstract=2029510 or http://dx.doi.org/10.2139/ssrn.2029510

Daniël Linders (Contact Author)

University of Illinois ( email )

306 Altgeld Hall,
1409 West Green Street
Champaign, IL 61822
United States

Jan Dhaene

Katholieke Universiteit Leuven ( email )

Naamsestraat 69
Leuven, 3000
Belgium

Hippolyte Hounnon

Université d'Abomey-Calavi (UAC) ( email )

Rue doctrine
www.faseg.net
Cotonou, ID Atlantique 01B.P.526
Benin

Michèle Vanmaele

Ghent University - Department of Applied Mathematics, Computer Science and Statistics ( email )

Krijgslaan 281
Ghent, B-9000
Belgium

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