Non-parametric Pricing and Hedging of Exotic Derivatives

@article{Lyons2019NonparametricPA,
  title={Non-parametric Pricing and Hedging of Exotic Derivatives},
  author={Terry Lyons and Sina Nejad and Imanol Perez Arribas},
  journal={Applied Mathematical Finance},
  year={2019},
  volume={27},
  pages={457 - 494}
}
ABSTRACT In the spirit of Arrow–Debreu, we introduce a family of financial derivatives that act as primitive securities in that exotic derivatives can be approximated by their linear combinations. We call these financial derivatives signature payoffs. We show that signature payoffs can be used to non-parametrically price and hedge exotic derivatives in the scenario where one has access to price data for other exotic payoffs. The methodology leads to a computationally tractable and accurate… Expand
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