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On the pricing of options under limited information


  • HEIJNEN, Bart


In spite of the power of the Black & Scholes option pricing method, there are situations in which the hypothesis of a lognormal model is too restrictive. One possibility to deal with this problem, consists of a weaker hypothesis, fixing only successive moments and eventually the mode of the price process of a risky asset, and not the complete distribution. The consequence of this generalization is the fact that the option price is no longer a unique value, but a range of several possible values. We show how to find upper and lower bounds, resulting in a rather narrow range. We give results in case two moments, three moments, or two moments and the mode of the underlying price process are fixed.

Suggested Citation

  • DE SCHEPPER, Ann & HEIJNEN, Bart, 2004. "On the pricing of options under limited information," Working Papers 2004004, University of Antwerp, Faculty of Applied Economics.
  • Handle: RePEc:ant:wpaper:2004004

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    Black-Scholes; Option pricing; Limited information;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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