Advanced Search
MyIDEAS: Login to save this article or follow this journal

About the cost of portfolio financing in Black-Scholes call option valuation

Contents:

Author Info

  • Cokki Versluis
Registered author(s):

    Abstract

    The theory of Black and Scholes is the basis for all contemporary financial option valuation methods. The theory is based on a portfolio consisting of stocks and options on that stock. The composition of the portfolio is renewed after a short time interval. The Black-Scholes method for valuing European call options ignores the cost of portfolio renewal. This study demonstrates that ignoring this cost may lead to an error. The relative error can be very large, especially in the case of out-of-the-money options, where the drift of the price process of the underlying asset substantially deviates from a risk-free drift.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://taylorandfrancis.metapress.com/link.asp?target=contribution&id=QN371135M1040T41
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Taylor and Francis Journals in its journal Applied Financial Economics Letters.

    Volume (Year): 2 (2006)
    Issue (Month): 2 (March)
    Pages: 95-97

    as in new window
    Handle: RePEc:taf:apfelt:v:2:y:2006:i:2:p:95-97

    Contact details of provider:
    Web page: http://www.tandfonline.com/RAFL20

    Order Information:
    Web: http://www.tandfonline.com/pricing/journal/RAFL20

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:taf:apfelt:v:2:y:2006:i:2:p:95-97. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.