Pricing Exotic Derivatives Using Regret Minimization

Eyal Gofer, Yishay Mansour

Abstract: We price various financial instruments, which are classified as exotic options, using the regret bounds of an online algorithm. In addition, we derive a general result, which upper bounds the price of any derivative whose payoff is a convex function of the final asset price. The market model used is adversarial, making our price bounds robust. Our results extend the work of [9], which used regret minimization to price the standard European call option, and demonstrate the applicability of regret minimization to derivative pricing.