A High-Level Framework for Practically Model-Independent Pricing

ArXiv ID: 2512.15718 “View on arXiv”

Authors: Marco Airoldi

Abstract

We present a high-level framework that explains why, in practice, different pricing models calibrated to the same vanilla surface tend to produce similar valuations for exotic derivatives. Our approach acts as an overlay on the Monte Carlo infrastructure already used in banks, combining path reweighting with a conic optimisation layer without requiring any changes to existing code. This construction delivers narrow, practically model-independent price bands for exotics, reconciling front-office practice with the robust, model-independent ideas developed in the academic literature.

Keywords: Monte Carlo, conic optimisation, price bands, model-independent valuation, exotic derivatives, Exotic Derivatives

Complexity vs Empirical Score

• Math Complexity: 8.5/10
• Empirical Rigor: 8.0/10
• Quadrant: Holy Grail
• Why: The paper employs advanced mathematics such as conic optimization, Martingale Optimal Transport, and entropic regularization, and provides detailed algorithmic steps and theoretical proofs. It also demonstrates strong empirical rigor with specific scalability claims (e.g., handling 100 fixing dates), direct integration with existing bank Monte Carlo infrastructure, and explicit implementation guidelines, making it backtest-ready and data-heavy.

  flowchart TD
    A["Research Goal<br>Explain convergence of exotic<br>valuations across models"] --> B["Input Data<br>Vanilla option surface<br>Exotic payoffs"]
    B --> C["Key Methodology<br>Monte Carlo Path Reweighting"]
    C --> D["Computational Process<br>Conic Optimization Layer"]
    D --> E["Outcome<br>Model-Independent Price Bands"]
    E --> F["Practical Impact<br>Reconciles Front-Office Practice<br>with Academic Theory"]