On Hidden Problems of Option Pricing
11 Pages Posted: 3 Jun 2016 Last revised: 13 Oct 2016
Date Written: June 1, 2016
This paper presents new look on option pricing and reconsiders derivation of the Black-Scholes-Merton equation. We argue options on stock price of economic agents that follow random Brownian walk on economic space. Risk ratings of economic agent play role of its coordinates on economic space. Description of economic agents and their economic variables like Value or Stock Price as functions of time and coordinates on economic space allows reconsider classical Black-Sholes-Merton model and discovers hidden complexity and problems of option pricing. We derive the Black-Sholes-Merton equation on n-dimensional economic space and argue new tough problems of option pricing.
Keywords: Option Pricing, Black-Scholes-Merton Equation, Economic Space
JEL Classification: C10, G10, G12, G13
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