The Pricing of Index Options When the Underlying Assets All Follow a Lognormal Diffusion
Posted: 18 Jul 2001
Abstract
In this paper, we present an index option pricing equation that is theoretically superior to prior models. Specially, we develop an analytic index option pricing equation assuming each security underlying the index follows geometric Brownian motion. We compare our model to the standard index option pricing model based on the Black and Scholes formula and find the difference to be significant.
JEL Classification: G13
Suggested Citation: Suggested Citation
Brooks, Robert E. and Corson, Jon and Wales, J. Donal, The Pricing of Index Options When the Underlying Assets All Follow a Lognormal Diffusion. Available at SSRN: https://ssrn.com/abstract=5735
Feedback
Feedback to SSRN
If you need immediate assistance, call 877-SSRNHelp (877 777 6435) in the United States, or +1 212 448 2500 outside of the United States, 8:30AM to 6:00PM U.S. Eastern, Monday - Friday.