Unique Option Pricing Measure with Neither Dynamic Hedging nor Complete Markets

Nassim Nicholas Taleb

NYU-Tandon School of Engineering; New England Complex Systems Institute

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

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Date posted: May 14, 2014 ; Last revised: September 17, 2014

Suggested Citation

Taleb, Nassim Nicholas, Unique Option Pricing Measure with Neither Dynamic Hedging nor Complete Markets (September 16, 2014). European Financial Management, Forthcoming . Available at SSRN: https://ssrn.com/abstract=2435916 or http://dx.doi.org/10.2139/ssrn.2435916

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Nassim Nicholas Taleb (Contact Author)
NYU-Tandon School of Engineering ( email )
Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States
New England Complex Systems Institute ( email )
24 Mt. Auburn St.
Cambridge, MA 02138
United States
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