European Financial Management, Forthcoming
8 Pages Posted: 14 May 2014 Last revised: 27 Jun 2017
Date Written: September 16, 2014
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.
Keywords: Derivatives, Options, Quantitative Finance
Suggested Citation: Suggested Citation
Taleb, Nassim Nicholas, Unique Option Pricing Measure with Neither Dynamic Hedging nor Complete Markets (September 16, 2014). European Financial Management, Forthcoming ; NYU Tandon Research Paper No. 2435916. Available at SSRN: https://ssrn.com/abstract=2435916 or http://dx.doi.org/10.2139/ssrn.2435916