Extension of Normed Call Prices for Negative Strikes and Forwards

Gope, Pijush und Fries, Christian P. (2013): Extension of Normed Call Prices for Negative Strikes and Forwards. SSRN

Abstract

After the recent financial crisis (also known as the "Credit Crunch'') it was observed that some market data exhibited non-zero probability for negative forward rates. In particular, options with zero strikes were quoted with non-zero prices. This led to the requirement to model and interpret option prices for negative strikes. In this note, irrespective of the asset classes, we provide a standardization technique for market call prices and derive the no-arbitrage properties that allow for negative strikes and forwards. Our approach works with non-deterministic discounting rates and multiple discounting curves that are increasingly becoming standard.

• Dokumententyp: Paper
• Fakultät: Mathematik, Informatik und Statistik > Mathematik > Finanz- und Versicherungsmathematik
• Themengebiete: 500 Naturwissenschaften und Mathematik > 510 Mathematik
• ISSN: 1556-5068
• Sprache: Englisch