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Numerical Method for Model-free Pricing of Exotic Derivatives in Discrete Time Using Rough Path Signatures

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  • Terry Lyons
  • Sina Nejad
  • Imanol Perez Arribas

Abstract

We estimate prices of exotic options in a discrete-time model-free setting when the trader has access to market prices of a rich enough class of exotic and vanilla options. This is achieved by estimating an unobservable quantity called ‘implied expected signature’ from such market prices, which are used to price other exotic derivatives. The implied expected signature is an object that characterizes the market dynamics.

Suggested Citation

  • Terry Lyons & Sina Nejad & Imanol Perez Arribas, 2019. "Numerical Method for Model-free Pricing of Exotic Derivatives in Discrete Time Using Rough Path Signatures," Applied Mathematical Finance, Taylor & Francis Journals, vol. 26(6), pages 583-597, November.
    • Handle: RePEc:taf:apmtfi:v:26:y:2019:i:6:p:583-597
    DOI: 10.1080/1350486X.2020.1726784
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    Cited by:

    1. Ming Min & Tomoyuki Ichiba, 2023. "Convolutional signature for sequential data," Digital Finance, Springer, vol. 5(1), pages 3-28, March.
    2. Christa Cuchiero & Philipp Schmocker & Josef Teichmann, 2023. "Global universal approximation of functional input maps on weighted spaces," Papers 2306.03303, arXiv.org, revised Feb 2024.
    3. Erdinc Akyildirim & Matteo Gambara & Josef Teichmann & Syang Zhou, 2023. "Randomized Signature Methods in Optimal Portfolio Selection," Papers 2312.16448, arXiv.org.
    4. Valentin Tissot-Daguette, 2021. "Projection of Functionals and Fast Pricing of Exotic Options," Papers 2111.03713, arXiv.org, revised Apr 2022.

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