The DOI matches its Crossref record; 13 of the 13 references it cites were found in a registry or an index.
General Equilibrium Pricing of Options on the Market Portfolio with Discontinuous Returns
Abstract
When the price process for a long-lived asset is of a mixed jump–diffusion type, pricing of options on that asset by arbitrage is not possible if trading is allowed only in the underlying asset and a riskless bond. Using a general equilibrium framework, we derive and analyze option prices when the underlying asset is the market portfolio with discontinuous returns. The premium for the risk of jumps and the diffusion risk forms a significant part of the prices of the options. In this economy, an attempted replication of call and put options by the Black–Scholes type of trading strategies may require substantial infusion of funds when jumps occur. We study the cost and risk implications of such dynamic hedging plans.
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Citations
Cites
The pricing of options and corporate liabilities
Black, F., & Scholes, M. (1973) · Journal of Political Economy · doi:10.1086/260062 · Cited by 29,074
Option pricing when underlying stock returns are discontinuous
Merton, R. C. (1976) · Journal of Financial Economics · doi:10.1016/0304-405x(76)90022-2 · Cited by 5,953
Asset Prices in an Exchange Economy
Lucas, R. E. (1978) · Econometrica · doi:10.2307/1913837 · Cited by 5,014
The valuation of options for alternative stochastic processes
Cox, J. C., & Ross, S. A. (1976) · Journal of Financial Economics · doi:10.1016/0304-405x(76)90023-4 · Cited by 2,934
Martingales and stochastic integrals in the theory of continuous trading
Harrison, J. M., & Pliska, S. R. (1981) · Stochastic Processes and their Applications · doi:10.1016/0304-4149(81)90026-0 · Cited by 2,835
The Valuation of Uncertain Income Streams and the Pricing of Options
Rubinstein, M. (1976) · The Bell Journal of Economics · doi:10.2307/3003264 · Cited by 1,618
On Jump Processes in the Foreign Exchange and Stock Markets
Jorion, P. (1988) · Review of Financial Studies · doi:10.1093/rfs/1.4.427 · Cited by 625
Stochastic Processes in Engineering Systems
Wong, E., & Hajek, B. (1985) · Springer Texts in Electrical Engineering · doi:10.1007/978-1-4612-5060-9 · Cited by 499
A Compound Events Model for Security Prices
Press, S. J. (1967) · The Journal of Business · doi:10.1086/294980 · Cited by 441
On Jumps in Common Stock Prices and Their Impact on Call Option Pricing
BALL, C. A., & TOROUS, W. N. (1985) · The Journal of Finance · doi:10.1111/j.1540-6261.1985.tb04942.x · Cited by 409
Cited by
A Jump-Diffusion Model for Option Pricing
Kou, S. G. (2002) · Management Science · doi:10.1287/mnsc.48.8.1086.166 · Cited by 1,889
Can Time‐Varying Risk of Rare Disasters Explain Aggregate Stock Market Volatility?
WACHTER, J. A. (2013) · The Journal of Finance · doi:10.1111/jofi.12018 · Cited by 910
The Crash of ʼ87: Was It Expected? The Evidence from Options Markets
BATES, D. S. (1991) · The Journal of Finance · doi:10.1111/j.1540-6261.1991.tb03775.x · Cited by 874
An Empirical Investigation of Continuous‐Time Equity Return Models
Andersen, T. G., Benzoni, L., & Lund, J. (2002) · The Journal of Finance · doi:10.1111/1540-6261.00460 · Cited by 866
An Equilibrium Model of Rare-Event Premia and Its Implication for Option Smirks
Liu, J., Pan, J., & Wang, T. (2005) · Review of Financial Studies · doi:10.1093/rfs/hhi011 · Cited by 391
Metadata
- Authors
- Naik, V., & Lee, M.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 1990-10
- Volume
- 3
- Issue
- 4
- Pages
- 493-521
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W2020769838
- Cited by
- 393
- References
- 13
- FWCI
- 10.54
- Type
- journal article
- Language
- en
- Open access
- closed
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
