Acceptability Bounds for Forward Starting Options Using Disciplined Convex Programming

12 Pages Posted: 26 Jul 2015

See all articles by Dilip B. Madan

Dilip B. Madan

University of Maryland - Robert H. Smith School of Business

King Wang

Morgan Stanley

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2014

Abstract

Acceptability pricing is formulated, for the dual problem, as a disciplined convex program solvable by the software CVXOPT. Forward starting options are used to illustrate the procedures for acceptability defined by positive expectation under the concave distortion minmaxvar. The measures used are required to reprice the liquid assets and must belong to the support set of acceptability. The bounds obtained bounds are substantially tighter than they would have been by leaving out either of the repricing constraints or the support sets for acceptability.

Keywords: Distorted Expectation, CVXOPT, Conic Duality

JEL Classification: G10, G11, G13

Suggested Citation

Madan, Dilip B. and Wang, King, Acceptability Bounds for Forward Starting Options Using Disciplined Convex Programming (November 1, 2014). Robert H. Smith School Research Paper No. RHS 2635649, Available at SSRN: https://ssrn.com/abstract=2635649 or http://dx.doi.org/10.2139/ssrn.2635649

Dilip B. Madan (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States
301-405-2127 (Phone)
301-314-9157 (Fax)

King Wang

Morgan Stanley ( email )

1585 Broadway
New York, NY 10036
United States

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