Static versus Dynamic Arbitrage Bounds on Multivariate Option Prices
<|reference_start|>Static versus Dynamic Arbitrage Bounds on Multivariate Option Prices: We compare static arbitrage price bounds on basket calls, i.e. bounds that only involve buy-and-hold trading strategies, with the price range obtained within a multi-variate generalization of the Black-Scholes model. While there is no gap between these two sets of prices in the univariate case, we observe here that contrary to our intuition about model risk for at-the-money calls, there is a somewhat large gap between model prices and static arbitrage prices, hence a similarly large set of prices on which a multivariate Black-Scholes model cannot be calibrated but where no conclusion can be drawn on the presence or not of a static arbitrage opportunity.<|reference_end|>
@article{d'aspremont2004static,
    title={Static versus Dynamic Arbitrage Bounds on Multivariate Option Prices},
    author={Alexandre d'Aspremont},
    journal={arXiv preprint arXiv:cs/0407029},
    year={2004},
    archivePrefix={arXiv},
    eprint={cs/0407029},
    primaryClass={cs.CE}
}