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Changes in risk and valuation of options: a unified approach to option pricing bounds

Research output: Working paper

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Changes in risk and valuation of options : a unified approach to option pricing bounds. / Huang, James.

Lancaster : Lancaster University, 2012.

Research output: Working paper

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@techreport{06f378e9412b4276b4d1b94be6651a95,
title = "Changes in risk and valuation of options: a unified approach to option pricing bounds",
abstract = "In this paper we first prove a theorem which reveals how changes in risk affect option values. The theorem can be used to solve most problems in the theory of option pricing bounds with restrictions on probability distributions or risk preferences, given the prices of the underlying stock and multiple observed options. We then present analytical solutions to such problems subject to four interesting classes of probability distributions and four important classes of risk preferences, respectively.",
keywords = "option pricing, changes in risk, options pricing bounds, unimodal distributions, log-concave CDFs, Stochastic dominance, DARA",
author = "James Huang",
year = "2012",
language = "English",
publisher = "Lancaster University",
type = "WorkingPaper",
institution = "Lancaster University",

}

RIS

TY - UNPB

T1 - Changes in risk and valuation of options

T2 - a unified approach to option pricing bounds

AU - Huang, James

PY - 2012

Y1 - 2012

N2 - In this paper we first prove a theorem which reveals how changes in risk affect option values. The theorem can be used to solve most problems in the theory of option pricing bounds with restrictions on probability distributions or risk preferences, given the prices of the underlying stock and multiple observed options. We then present analytical solutions to such problems subject to four interesting classes of probability distributions and four important classes of risk preferences, respectively.

AB - In this paper we first prove a theorem which reveals how changes in risk affect option values. The theorem can be used to solve most problems in the theory of option pricing bounds with restrictions on probability distributions or risk preferences, given the prices of the underlying stock and multiple observed options. We then present analytical solutions to such problems subject to four interesting classes of probability distributions and four important classes of risk preferences, respectively.

KW - option pricing

KW - changes in risk

KW - options pricing bounds

KW - unimodal distributions

KW - log-concave CDFs

KW - Stochastic dominance

KW - DARA

M3 - Working paper

BT - Changes in risk and valuation of options

PB - Lancaster University

CY - Lancaster

ER -