Option Bounds from Concurrently Expiring Options When Relative Risk Aversion is Bounded PDF Download

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Option Bounds from Concurrently Expiring Options When Relative Risk Aversion is Bounded

Option Bounds from Concurrently Expiring Options When Relative Risk Aversion is Bounded PDF Author: James Huang
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Languages : en
Pages : 25

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Book Description
In this paper, we derive option bounds from concurrently expiring option prices assuming the (pricing) representative investor's relative risk aversion is bounded. We show that given n concurrently expiring options, the option bounds are given by pricing kernels that have (n+2)- segmented piecewise constant elasticity. Closed form formulas are presented for the case where the distribution of the stock price is log-normal.