General Properties of Option Prices (1996)
| Citations: | 45 - 0 self |
BibTeX
@MISC{Bergman96generalproperties,
author = {Yaacov Z. Bergman and Bruce D. Grundy and Zvi Wiener and Giovanni Barone-adesi and Avi Bick and Peter Carr and Domenico Cuoco and Sanjiv Das and Darrell Duffie and Steve Ross and Mark Rubinstein},
title = {General Properties of Option Prices},
year = {1996}
}
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Abstract
When the underlying price process is a one-dimensional diffusion, as well as in certain restricted stochastic volatility settings, a contingent claim's delta is always bounded by the infimum and supremum of its delta at maturity. Further, if the claim's payoff is convex (concave), then the claim's price is a convex (concave) function of the underlying asset's value. However when volatility is less specialized, or when the underlying price follows a discontinuous or non-Markovian process, then call prices can have properties very different from those of the Black-Scholes model: a call's price can be a decreasing, concave function of the underlying price over some range; increasing with the passage of time; and decreasing in the level of interest rates. Much of the financial options literature derives precise option prices, when the underlying asset price process is completely specified. Since it is empirically difficult to ascertain what the true underlying process is, another part of t...
