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Price as a matter of choice and nonstochastic randomness

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  • Yaroslav Ivanenko

Abstract

A version of indifference valuation of a European call option is proposed that includes statistical regularities of nonstochastic randomness. Classical relations (forward contract value and Black-Scholes formula) are obtained as particular cases. We show that in the general case of nonstochastic randomness the minimal expected profit of uncovered European option position is always negative. A version of delta hedge is proposed.

Suggested Citation

  • Yaroslav Ivanenko, 2010. "Price as a matter of choice and nonstochastic randomness," Papers 1006.2555, arXiv.org, revised Mar 2011.
  • Handle: RePEc:arx:papers:1006.2555
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    File URL: http://arxiv.org/pdf/1006.2555
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    References listed on IDEAS

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    1. Ross, Stephen A., 1976. "The arbitrage theory of capital asset pricing," Journal of Economic Theory, Elsevier, vol. 13(3), pages 341-360, December.
    2. 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 637-654, May-June.
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