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CAPM option pricing

  • Husmann, Sven
  • Todorova, Neda
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    This paper extends the option pricing equations of Black and Scholes [1973. Journal of Political Economy 81, 637–654], Jarrow and Madan [1997. European Finance Review 1, 15–30] and Husmann and Stephan [2007. Journal of Futures Markets 27, 961–979]. In particular, we show that the length of the individual planning horizon is a determinant of an option’s value. The derived pricing equations can be presented in terms of the Black and Scholes [1973. Journal of Political Economy 81, 637–654] option values which ensures an easy application in practice.

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    Article provided by Elsevier in its journal Finance Research Letters.

    Volume (Year): 8 (2011)
    Issue (Month): 4 ()
    Pages: 213-219

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    Handle: RePEc:eee:finlet:v:8:y:2011:i:4:p:213-219
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    1. Joel M. Vanden, 2004. "Options Trading and the CAPM," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 207-238.
    2. Rubinstein, Mark, 1984. " A Simple Formula for the Expected Rate of Return of an Option over a Finite Holding Period," Journal of Finance, American Finance Association, vol. 39(5), pages 1503-09, December.
    3. Sven Husmann & Andreas Stephan, 2006. "On Estimating an Asset's Implicit Beta," Discussion Papers of DIW Berlin 640, DIW Berlin, German Institute for Economic Research.
    4. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
    5. 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.
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