Title
On the pricing of options under limited information On the pricing of options under limited information
Author
Faculty/Department
Faculty of Applied Economics
Publication type
report
Publication
Antwerp :UA, [*]
Source (series)
Research paper / UA, Faculteit TEW ; 2004:4
Volume/pages
28 p.,
Carrier
E
Target language
English (eng)
Affiliation
University of Antwerp
Abstract
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.
Full text (open access)
https://repository.uantwerpen.be/docman/irua/86aeb9/84e6c312.pdf
Handle