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Title
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On the pricing of options under limited information
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Author
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Abstract
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| 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. |
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Language
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English
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Source (series)
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Research paper / UA, Faculteit TEW ; 2004:4
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Publication
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Antwerp
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UA
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2004
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Volume/pages
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28 p.
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Full text (open access)
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