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Option valuation: key issues in option pricing

Option valuation: key issues in option pricing In this paper we attempt to address, in a non‐technical way, the basic assumptions underlying option pricing theory and point out some of the inherent weaknesses they imply in the reliability of the resulting valuations. We present several concrete examples to illustrate the impact of the modeling assumptions and selecting input parameters for the models. We point out the importance for anybody involved in derivatives business to be aware of such issues and encourage them to obtain at least a superficial understanding of the quantitative aspects of option pricing. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Balance Sheet Emerald Publishing

Option valuation: key issues in option pricing

Balance Sheet , Volume 8 (4): 6 – Aug 1, 2000

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Publisher
Emerald Publishing
Copyright
Copyright © 2000 MCB UP Ltd. All rights reserved.
ISSN
0965-7967
DOI
10.1108/09657960010373428
Publisher site
See Article on Publisher Site

Abstract

In this paper we attempt to address, in a non‐technical way, the basic assumptions underlying option pricing theory and point out some of the inherent weaknesses they imply in the reliability of the resulting valuations. We present several concrete examples to illustrate the impact of the modeling assumptions and selecting input parameters for the models. We point out the importance for anybody involved in derivatives business to be aware of such issues and encourage them to obtain at least a superficial understanding of the quantitative aspects of option pricing.

Journal

Balance SheetEmerald Publishing

Published: Aug 1, 2000

Keywords: Options; Derivatives; Valuation; Financial engineering

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