Computation of Robust Option Prices via Structured Multimarginal Martingale Optimal Transport
Linn Engström, Sigrid Källblad, Johan Karlsson
Source abstract
Abstract. We introduce an efficient computational framework for solving a class of multimarginal martingale optimal transport problems, which includes many robust pricing problems of large financial interest. Such problems are typically computationally challenging due to the martingale constraint; however, by extending the state space we can identify them with problems that exhibit a certain sequential martingale structure. Our method exploits such structures in combination with entropic regularization, enabling fast computation of optimal solutions and allowing us to solve problems with a large number of marginals. We demonstrate the method by using it for computing robust price bounds for different options, such as lookback options and Asian options.
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