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Valuation Bounds on Barrier Options Under Model Uncertainty


  • This study is based on Chapter 2 of my dissertation. The author gratefully acknowledges the support from and invaluable discussions with Anthony Neuberger, Nick Webber, Xing Jin, and Juan Tao as well as the fruitful comments of one anonymous referee. The editorial support from Editor Robert Webb is sincerely appreciated without any reservation. The author also acknowledges the financial support from Warwick Postgraduate Research Scholarship (WPRS).

Correspondence author, Department of Business, Economics and Management, Xi'an Jiaotong-Liverpool University, No. 111 Ren'ai Road, Suzhou, Jiangsu 215123, China. Tel: +86 512 8816 1729, Fax: +86 512 8816 1730


This article investigates valuation bounds on barrier options under model uncertainty. This investigation enriches the literature on the model-free valuation of these exotic options. It is found that with weak assumptions on underlying price processes, tight valuation bounds on barrier options can be sought from a set of European options. As a result, the numerical routine developed in this article can be reviewed as a new method for the evaluation of barrier options, which is independent of model assumptions. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:199–234, 2013