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FAQ’sinOptionPricingTheory

by Peter Carr
"... We consider several Frequently Asked Questions (FAQ’s) in option pricing theory. This paper has benefitted from the comments received during presentations made at CIFER99, Risk 99, Brooklyn Polytechnic, and Carnegie Mellon. The participants of these presentations are not responsible for any errors. ..."
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We consider several Frequently Asked Questions (FAQ’s) in option pricing theory. This paper has benefitted from the comments received during presentations made at CIFER99, Risk 99, Brooklyn Polytechnic, and Carnegie Mellon. The participants of these presentations are not responsible for any errors

Valuation with Option Pricing Theory

by V E +b, Bonds B, V E +b, V E +b , 2003
"... Shares and bonds are derivatives on the firm’s assets. Limited liability gives shareholders the option to abandon the firm, to put it to the bondholders. Bondholders have a short position in this put option. ..."
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Shares and bonds are derivatives on the firm’s assets. Limited liability gives shareholders the option to abandon the firm, to put it to the bondholders. Bondholders have a short position in this put option.

Liquidity Risk and Option Pricing Theory

by Robert A. Jarrow, Philip Protter - in Handbook in Operation Research and Management Science: Financial Engineering , 2007
"... This paper summarizes the recent advances of Çetin[6],Çetin,Jarrow and Protter [7], Çetin, Jarrow, Protter and Warachka [8], Blais [4], and Blais and Protter [5] on the inclusion of liquidity risk into option pricing theory. This research provides new insights into the relevance of the classical tec ..."
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This paper summarizes the recent advances of Çetin[6],Çetin,Jarrow and Protter [7], Çetin, Jarrow, Protter and Warachka [8], Blais [4], and Blais and Protter [5] on the inclusion of liquidity risk into option pricing theory. This research provides new insights into the relevance of the classical

An Analytic Derivation of the Cost of Deposit Insurance and Loan Guarantees: An Application of Modern Option Pricing Theory

by Robert C. Merton - Journal of Banking and Finance , 1977
"... It is not uncommon in the arrangement of a loan to include as part of the financial package a guarantee of the loan by a third party. Examples are guarantees by a parent company of loans made to its subsidiaries or government guarantees of loans made to private corporations. Also included would be g ..."
Abstract - Cited by 444 (6 self) - Add to MetaCart
between loan guarantees and common stock put options, and then to use the well developed theory of option pricing to derive the formula. 1.

Nonexpansive maps and option pricing theory

by Vassili N. Kolokoltsov, Vassili N. Kolokoltsov - Kybernetika , 1998
"... The famous Black-Sholes (BS) and Cox-Ross-Rubinstein (CRR) formulas are basic results in the modern theory of option pricing in financial mathematics. They are usually deduced by means of stochastic analysis; various generalisations of these formulas were proposed using more sophisticated stochastic ..."
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The famous Black-Sholes (BS) and Cox-Ross-Rubinstein (CRR) formulas are basic results in the modern theory of option pricing in financial mathematics. They are usually deduced by means of stochastic analysis; various generalisations of these formulas were proposed using more sophisticated

Valuating Privacy with Option Pricing Theory

by Stefan Berthold, Rainer Böhme , 2009
"... One of the key challenges of the information society is responsible handling of personal data. An often-cited reason why people fail to make rational decisions regarding their own informational privacy is the high uncertainty about future consequences of information disclosures today. This paper bu ..."
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builds an analogy to financial options and draws on principles of option pricing to account for this uncertainty in the valuation of privacy. For this purpose, the development of a data subject’s personal attributes over time and the development of the attribute distribution in the population

Loan Guarantees: An Option Pricing Theory Perspective

by Fabio Pizzutilo, Francesco Calò
"... In this paper we analyze security loan guarantees in the light of the option pricing theory. We interpret them as put options on the cash flows of a secured debt. We highlight that the value of the guarantee is always positive before a loan’s maturity and it depends on the same factors that determin ..."
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In this paper we analyze security loan guarantees in the light of the option pricing theory. We interpret them as put options on the cash flows of a secured debt. We highlight that the value of the guarantee is always positive before a loan’s maturity and it depends on the same factors

FAQ's in Option Pricing Theory

by Peter Carr , 1999
"... We consider several Frequently Asked Questions (FAQ's) in option pricing theory. I thank Ajay Khanna and Carol Marquardt for their comments. I Introduction The recent award of the Nobel prize in economics to Professors Merton and Scholes has attracted many newcomers to the field of derivative ..."
Abstract - Cited by 1 (0 self) - Add to MetaCart
We consider several Frequently Asked Questions (FAQ's) in option pricing theory. I thank Ajay Khanna and Carol Marquardt for their comments. I Introduction The recent award of the Nobel prize in economics to Professors Merton and Scholes has attracted many newcomers to the field of derivative

Towards Non-Equilibrium Option Pricing Theory

by Matthias Otto - Internal J. Theoret. & Appl. Fin , 2000
"... A recently proposed model (by Ilinski et al.) for the dynamics of intermediate deviations from equilibrium of financial markets ( “virtual ” arbitrage returns) is incorporated within an equilibrium (arbitrage-free) pricing method for derivatives on securities (e.g. stocks) using an equivalence to op ..."
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to option pricing theory with stochastic interest rates. Making the arbitrage return a component of a fictitious short-term interest rate (while the real risk-free rate is assumed to be constant) and thus treating it as another source of uncertainty (besides the security price) in a virtual world

suggestions. Assessing the Incremental Value of Option Pricing Theory

by Stephen Figlewski, Peter Carr, Sari Carp, Rob Engle , 2002
"... Relative to an "Informationally Passive " Benchmark In modern finance, the value of an active investment strategy is measured by comparing its performance against the benchmark of passively holding the market portfolio and the riskless asset. We wish to evaluate the marginal contribution o ..."
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of a theoretical derivatives pricing model in the same way, by comparing its performance against an "informationally passive " alternative model. All rationally priced options must satisfy a number of conditions to rule out profitable static arbitrage. The Black-Scholes model, and others like
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