Decreasing absolute risk aversion and option pricing bounds

• 成果类型: Article
• 署名作者: Basso, A; Pianca, P
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.43.2.206
• 发表日期: 1997
• 页码: 206-216
• 关键词: decreasing absolute risk aversion; option pricing; stochastic dominance; mathematical programming

摘要

In this paper efficient bounds for the price of a call option are obtained using the decreasing absolute risk aversion (DARA) dominance rule. Such lower and upper bounds are obtained minimizing and maximizing, respectively, the objective function of a nonlinear optimization problem. An explicit formula (related to an exponential utility function) is given for the special case of three states of nature. A large number of experiments have been carried out and the numerical results support the conjecture that the same formula holds for problems with a number of states n > 3. Moreover, DARA bounds are more efficient than the bounds obtained using different criteria.