The valuation of options when asset returns are generated by a binomial process

Article Abstract:

Options on assets are valued, whose returns over a particular period of time are generated by a binomial process. A simple valuation relationship between the option and the underlying stock determines whether investors have preference functions from a particular class - even if opportunities to hedge do not exist. The theory is applicable to a case in which the stock price over a specific time period could increase by an amount, fall by the same amount, or stay the same. These results can be seen as the foundation for the preference-based approaches to obtaining a risk neutral valuation relationship.

Options (Finance)

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The Valuation of Multivariate Contingent Claims in Discrete Time Models

Article Abstract:

The pricing of contingent claims is obtained in risk-neutral valuation in discrete time. Both multivariate normality with constant absolute risk and multivariate cognormality with constant proportional risk aversion yield a risk-neutral valuation relationship. Satisfactory multiperiod bonds, multicurrency option bonds, and investment options.

Investments

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The Market Model and Capital Asset Pricing Theory: A Note

Article Abstract:

Proof is derived that a linear market model is satisfactory in deriving a linear relationship between risk and return. Results are similar to the CAPM. Little difference is found between the assumptions of multivariate normality and the market model linearity.

Models, Industrial equipment

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