Option Pricing With V. G. Martingale Components
AbstractEuropean call options are priced when the uncertainty driving the stock price follows the V. G. stochastic process (Madan and Seneta 1990). the incomplete markets equilibrium change of measure is approximated and identified using the log return mean, variance, and kurtosis. an exact equilibrium interpretation is also provided, allowing inference about relative risk aversion coefficients from option prices. Relative to Black-Scholes, V. G. option values are higher, particularly so for out of the money options with long maturity on stocks with high means, low variances, and high kurtosis. Copyright 1991 Blackwell Publishers.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Mathematical Finance.
Volume (Year): 1 (1991)
Issue (Month): 4 ()
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627
Other versions of this item:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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