IDEAS home Printed from https://ideas.repec.org/a/bla/scandj/v97y1995i3p459-67.html
   My bibliography  Save this article

The Risk and Price Volatility of Stock Options in General Equilibrium

Author

Listed:
  • Drees, Burkhard
  • Eckwert, Bernhard

Abstract

The traditional valuation formulas for options were derived in a complete market setting and were based on the no-arbitrage principle. If the asset structure is incomplete, the presence of options affects the linear subspace spanned by the payoffs of the existing assets, and the pricing of options and underlying primary assets becomes a simultaneous valuation problem. We characterize the relationship between the prices of options and the prices of the stocks on which the options are written in a general equilibrium model where options are non-redundant assets. Contrary to the predictions of the Black-Scholes-Merton theory, in our model investor preferences have an impact on the relationship between the prices of primary and derivative assets. Copyright 1995 by The editors of the Scandinavian Journal of Economics.

Suggested Citation

  • Drees, Burkhard & Eckwert, Bernhard, 1995. "The Risk and Price Volatility of Stock Options in General Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 97(3), pages 459-467, September.
    • Handle: RePEc:bla:scandj:v:97:y:1995:i:3:p:459-67
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Niehaus, Frank, 2001. "The Influence of Heterogeneous Preferences on Asset Prices in an Incomplete Market Model," Hannover Economic Papers (HEP) dp-234, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    2. Hiremath, Gourishankar S, 2009. "Effects of Option Introduction on Price and Volatility of Underlying Assets - A Review," MPRA Paper 46512, University Library of Munich, Germany.
    3. Frank Niehaus, 2000. "A Simple Option Pricing Model With Heterogeneous Agents," Computing in Economics and Finance 2000 342, Society for Computational Economics.
    4. Udo Broil & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, John Wiley & Sons, vol. 66(1), pages 178-185, July.
    5. Lim, Terence & Lo, Andrew W. & Merton, Robert C. & Scholes, Myron S., 2006. "The Derivatives Sourcebook," Foundations and Trends(R) in Finance, now publishers, vol. 1(5–6), pages 365-572, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:scandj:v:97:y:1995:i:3:p:459-67. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.