Unique Option Pricing Measure with Neither Dynamic Hedging nor Complete Markets

European Financial Management, Forthcoming

8 Pages Posted: 14 May 2014 Last revised: 17 Sep 2014

Nassim Nicholas Taleb

NYU-Tandon School of Engineering

Date Written: September 16, 2014

Abstract

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

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

Nassim Nicholas Taleb (Contact Author)

NYU-Tandon School of Engineering ( email )

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