An Options Pricing Formula with Volume as a Variable

Posted: 23 Jul 1999

Date Written: August 1994

Abstract

I study jump stochastic processes for stock price movements. I show that if the jumps are identically distributed random variables independent of the times of the jumps, then as the Poisson parameter tends to infinity, the stock price process becomes geometric Brownian motion. I derive a {\it no-arbitrage} options pricing formula for European options based on a theoretical tool called {\it almost replicability} of contingent claims. The model is compared with the Black-Scholes formula for a wide variety of call options, and pricing biases of Black-Scholes (versus this model) are summarized.

JEL Classification: G13

Suggested Citation

Chriss, Neil A., An Options Pricing Formula with Volume as a Variable (August 1994). Available at SSRN: https://ssrn.com/abstract=5558

Neil A. Chriss (Contact Author)

Hutchin Hill Capital ( email )

142 West 57th Street
New York, NY 10019
United States

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