Unique Option Pricing Measure with Neither Dynamic Hedging nor Complete Markets
Nassim Nicholas Taleb
New York University-Poly School of Engineering
September 16, 2014
European Financial Management, Forthcoming
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one, under any general probability distribution, bypassing the Black-Scholes-Merton dynamic hedging argument, and without the requirement of complete markets. We confirm that the heuristics used by traders for centuries are both more robust, more consistent, and more rigorous than held in the economics literature.
Number of Pages in PDF File: 8
Keywords: Derivatives, Options, Quantitative Finance
Date posted: May 14, 2014 ; Last revised: September 17, 2014
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.390 seconds