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The Impact on Option Pricing of Specification Error in the Underlying Stock Price Returns (Classic Reprint) - Softcover
Synopsis
Misspecified stock return models can distort option values and variance estimates—and here’s how the issue unfolds in clear terms.
This book explains a framework where stock prices move by both normal, continuous changes and occasional jumps caused by new information. It shows how using a standard Black-Scholes approach can misprice options when jumps matter, and it walks through the math and its practical implications with careful examples and simulations. The result is a concrete look at why model choice matters for traders, risk managers, and students of financial markets.
- Learn how continuous and jump components of stock moves interact to affect option prices
- See when the Black-Scholes formula may give misleading values and why
- Explore how variance estimation changes under misspecified dynamics
- Review practical implications for option hedging and risk assessment
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About the Author
Robert C. Merton is George Fisher Baker, Professor of Business Administration, Harvard University.
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The Impact on Option Pricing of Specification Error in the Underlying Stock
Print on DemandSeller: Forgotten Books, London, United Kingdom
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Paperback. Condition: New. Print on Demand. This book examines the impact of misspecification error in the underlying stock price returns on option pricing. The author compares the option prices arrived at by an investor who believes that the distribution of the unanticipated returns of the underlying stock is lognormal and hence that he can use the classic Black-Scholes pricing formula with the "correct" option prices if the true process for the underlying stock is a mixture of a lognormal process and a jump process. Through simulations and mathematical modeling, the author explores the nature and magnitude of these errors, providing insights into the implications of misspecification for option pricing and the broader financial markets. This book is a reproduction of an important historical work, digitally reconstructed using state-of-the-art technology to preserve the original format. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in the book. print-on-demand item. Seller Inventory # 9781334537615_0
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The Impact on Option Pricing of Specification Error in the Underlying Stock Price Returns (Classic Reprint)
Seller: PBShop.store US, Wood Dale, IL, U.S.A.
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PAP. Condition: New. New Book. Shipped from UK. Established seller since 2000. Seller Inventory # LW-9781334537615
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The Impact on Option Pricing of Specification Error in the Underlying Stock Price Returns (Classic Reprint)
Seller: PBShop.store UK, Fairford, GLOS, United Kingdom
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PAP. Condition: New. New Book. Shipped from UK. Established seller since 2000. Seller Inventory # LW-9781334537615
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