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On the lower arbitrage bound of American contingent claims

Author

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  • Acciaio, Beatrice
  • Svindland, Gregor

Abstract

We prove that in a discrete-time market model the lower arbitrage bound of an American contingent claim is itself an arbitrage-free price if and only if it corresponds to the price of the claim optimally exercised under some equivalent martingale measure.

Suggested Citation

  • Acciaio, Beatrice & Svindland, Gregor, 2014. "On the lower arbitrage bound of American contingent claims," LSE Research Online Documents on Economics 50117, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:50117
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    File URL: http://eprints.lse.ac.uk/50117/
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    References listed on IDEAS

    as
    1. Frank Riedel, 2009. "Optimal Stopping With Multiple Priors," Econometrica, Econometric Society, vol. 77(3), pages 857-908, May.
    2. Kreps, David M., 1981. "Arbitrage and equilibrium in economies with infinitely many commodities," Journal of Mathematical Economics, Elsevier, vol. 8(1), pages 15-35, March.
    3. Ioannis Karatzas & (*), S. G. Kou, 1998. "Hedging American contingent claims with constrained portfolios," Finance and Stochastics, Springer, vol. 2(3), pages 215-258.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    American contingent claim; arbitrage-free price; Snell envelope;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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