Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/32190
Authors: 
Franke, Günter
Huang, James
Stapleton, Richard C.
Year of Publication: 
2007
Series/Report no.: 
Discussion paper series // Zentrum für Finanzen und Ökonometrie, Universität Konstanz 2007,08
Abstract: 
The Black-Scholesmodelis basedona one-parameter pricingkernel with constantelasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel withat leasttwo parameters.We price European-style optionson assets whose probability distributions have two unknown parameters. We assume a pricing kernel which also has two unknown parameters. When certain conditions are met,atwo-dimensional risk-neutral valuation relationship exists for the pricing of these options: i.e. the relationshipbetween the price of the option and the prices of the underlying asset and one other option on the assetisthe sameasitwouldbe under risk neutrality.In this classofmodels,the priceof the underlying asset and that of one other option take the place of the unknown parameters.
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
226.59 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.