The Valuation of Uncertain Income Streams and the Pricing of Options
A simple formula is developed for the valuation of uncertain income streams consistent with rational risk averse investor behavior and equilibrium in financial markets. Applying this formula to the pricing of an option as a function of its associated stock, the Black-Scholes formula is derived even though investors can only trade at discrete points in time.
Volume (Year): 7 (1976)
Issue (Month): 2 (Autumn)
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