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An Option Valuation Framework Based On Arithmetic Brownian Motion: Justification And Implementation Issues

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  • Robert Brooks
  • Joshua A. Brooks

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  • Robert Brooks & Joshua A. Brooks, 2017. "An Option Valuation Framework Based On Arithmetic Brownian Motion: Justification And Implementation Issues," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 40(3), pages 401-427, September.
    • Handle: RePEc:bla:jfnres:v:40:y:2017:i:3:p:401-427
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    1. Carr, Peter & Wu, Liuren, 2004. "Time-changed Levy processes and option pricing," Journal of Financial Economics, Elsevier, vol. 71(1), pages 113-141, January.
    2. Kairys, Joseph P, Jr & Valerio, Nicholas, III, 1997. "The Market for Equity Options in the 1870s," Journal of Finance, American Finance Association, vol. 52(4), pages 1707-1723, September.
    3. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
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    5. Black, Fischer & Scholes, Myron S, 1972. "The Valuation of Option Contracts and a Test of Market Efficiency," Journal of Finance, American Finance Association, vol. 27(2), pages 399-417, May.
    6. Aït-Sahalia, Yacine & Fan, Jianqing & Li, Yingying, 2013. "The leverage effect puzzle: Disentangling sources of bias at high frequency," Journal of Financial Economics, Elsevier, vol. 109(1), pages 224-249.
    7. Jaehyuk Choi & Kwangmoon Kim & Minsuk Kwak, 2009. "Numerical Approximation of the Implied Volatility Under Arithmetic Brownian Motion," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(3), pages 261-268.
    8. Robert C. Merton, 2005. "Theory of rational option pricing," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 8, pages 229-288, World Scientific Publishing Co. Pte. Ltd..
    9. Corsi, Fulvio & Fusari, Nicola & La Vecchia, Davide, 2013. "Realizing smiles: Options pricing with realized volatility," Journal of Financial Economics, Elsevier, vol. 107(2), pages 284-304.
    10. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    11. Harrison, J. Michael & Pliska, Stanley R., 1983. "A stochastic calculus model of continuous trading: Complete markets," Stochastic Processes and their Applications, Elsevier, vol. 15(3), pages 313-316, August.
    12. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," The Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-343.
    13. Jin‐Chuan Duan, 1995. "The Garch Option Pricing Model," Mathematical Finance, Wiley Blackwell, vol. 5(1), pages 13-32, January.
    14. MacBeth, James D & Merville, Larry J, 1979. "An Empirical Examination of the Black-Scholes Call Option Pricing Model," Journal of Finance, American Finance Association, vol. 34(5), pages 1173-1186, December.
    15. Geoffrey Poitras, 1998. "Spread options, exchange options, and arithmetic Brownian motion," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 18(5), pages 487-517, August.
    16. J. Austin Murphy, 1990. "A Modification and Re-Examination of the Bachelier Option Pricing Model," The American Economist, Sage Publications, vol. 34(2), pages 34-41, October.
    17. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
    18. Stutzer, Michael, 1996. "A Simple Nonparametric Approach to Derivative Security Valuation," Journal of Finance, American Finance Association, vol. 51(5), pages 1633-1652, December.
    19. A. James Boness, 1964. "Elements of a Theory of Stock-Option Value," Journal of Political Economy, University of Chicago Press, vol. 72(2), pages 163-163.
    20. Nina Mazar & Kristina Shampanier & Dan Ariely, 2017. "When Retailing and Las Vegas Meet: Probabilistic Free Price Promotions," Management Science, INFORMS, vol. 63(1), pages 250-266, January.
    21. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    22. Lyndon Moore & Steve Juh, 2006. "Derivative Pricing 60 Years before Black–Scholes: Evidence from the Johannesburg Stock Exchange," Journal of Finance, American Finance Association, vol. 61(6), pages 3069-3098, December.
    23. Chiras, Donald P. & Manaster, Steven, 1978. "The information content of option prices and a test of market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 213-234.
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    Cited by:

    1. Nancy Asare Nyarko & Bhathiya Divelgama & Jagdish Gnawali & Blessing Omotade & Svetlozar Rachev & Peter Yegon, 2023. "Exploring Dynamic Asset Pricing within Bachelier Market Model," Papers 2307.04059, arXiv.org.
    2. W. Brent Lindquist & Svetlozar T. Rachev & Jagdish Gnawali & Frank J. Fabozzi, 2024. "Dynamic Asset Pricing in a Unified Bachelier-Black-Scholes-Merton Model," Papers 2405.12479, arXiv.org, revised Jun 2024.
    3. Jaehyuk Choi & Chenru Liu & Byoung Ki Seo, 2019. "Hyperbolic normal stochastic volatility model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(2), pages 186-204, February.
    4. Jaehyuk Choi & Minsuk Kwak & Chyng Wen Tee & Yumeng Wang, 2021. "A Black-Scholes user's guide to the Bachelier model," Papers 2104.08686, arXiv.org, revised Feb 2022.
    5. W. Brent Lindquist & Svetlozar T. Rachev & Jagdish Gnawali & Frank J. Fabozzi, 2024. "Dynamic Asset Pricing in a Unified Bachelier–Black–Scholes–Merton Model," Risks, MDPI, vol. 12(9), pages 1-24, August.
    6. Matta Uma Maheswara Reddy, 2019. "Option pricing under normal dynamics with stochastic volatility," Papers 1909.08047, arXiv.org, revised Oct 2019.
    7. Jaehyuk Choi & Minsuk Kwak & Chyng Wen Tee & Yumeng Wang, 2022. "A Black–Scholes user's guide to the Bachelier model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(5), pages 959-980, May.

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