IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v8y2011i4p213-219.html
   My bibliography  Save this article

CAPM option pricing

Author

Listed:
  • Husmann, Sven
  • Todorova, Neda

Abstract

This paper extends the option pricing equations of Black and Scholes [1973. Journal of Political Economy 81, 637–654], Jarrow and Madan [1997. European Finance Review 1, 15–30] and Husmann and Stephan [2007. Journal of Futures Markets 27, 961–979]. In particular, we show that the length of the individual planning horizon is a determinant of an option’s value. The derived pricing equations can be presented in terms of the Black and Scholes [1973. Journal of Political Economy 81, 637–654] option values which ensures an easy application in practice.

Suggested Citation

  • Husmann, Sven & Todorova, Neda, 2011. "CAPM option pricing," Finance Research Letters, Elsevier, vol. 8(4), pages 213-219.
    • Handle: RePEc:eee:finlet:v:8:y:2011:i:4:p:213-219
    DOI: 10.1016/j.frl.2011.03.001
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612311000146
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2011.03.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robert A. Jarrow & Dilip B. Madan, 1997. "Is Mean-Variance Analysis Vacuous: Or was Beta Still Born?," Review of Finance, European Finance Association, vol. 1(1), pages 15-30.
    2. Sven Husmann & Andreas Stephan, 2007. "On estimating an asset's implicit beta," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(10), pages 961-979, October.
    3. Rubinstein, Mark, 1984. "A Simple Formula for the Expected Rate of Return of an Option over a Finite Holding Period," Journal of Finance, American Finance Association, vol. 39(5), pages 1503-1509, December.
    4. 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.
    5. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
    6. Joel M. Vanden, 2004. "Options Trading and the CAPM," The Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 207-238.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Villena, Marcelo & Villena, Mauricio, 2011. "Option Pricing in an Oligopolistic Setting," MPRA Paper 57978, University Library of Munich, Germany, revised 16 Aug 2014.
    2. Arısoy, Yakup Eser & Altay-Salih, Aslıhan & Pınar, Mustafa Ç, 2014. "Optimal multi-period consumption and investment with short-sale constraints," Finance Research Letters, Elsevier, vol. 11(1), pages 16-24.
    3. Buchner, Axel, 2015. "Equilibrium option pricing: A Monte Carlo approach," Finance Research Letters, Elsevier, vol. 15(C), pages 138-145.
    4. Chen, Son-Nan & Chiang, Mi-Hsiu & Hsu, Pao-Peng & Li, Chang-Yi, 2014. "Valuation of quanto options in a Markovian regime-switching market: A Markov-modulated Gaussian HJM model," Finance Research Letters, Elsevier, vol. 11(2), pages 161-172.
    5. Buchner, Axel, 2016. "Risk-adjusting the returns of private equity using the CAPM and multi-factor extensions," Finance Research Letters, Elsevier, vol. 16(C), pages 154-161.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Husmann, Sven, 2005. "On Estimating an Asset's Implicit Beta," Discussion Papers 238, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
    3. Cayton, Peter Julian, 2015. "A Nonparametric Option Pricing Model Using Higher Moments," MPRA Paper 63755, University Library of Munich, Germany.
    4. Bakshi, Gurdip & Madan, Dilip & Panayotov, George, 2010. "Returns of claims on the upside and the viability of U-shaped pricing kernels," Journal of Financial Economics, Elsevier, vol. 97(1), pages 130-154, July.
    5. Sanjay K. Nawalkha & Xiaoyang Zhuo, 2022. "A Theory of Equivalent Expectation Measures for Contingent Claim Returns," Journal of Finance, American Finance Association, vol. 77(5), pages 2853-2906, October.
    6. Peter Carr & Liuren Wu, 2014. "Static Hedging of Standard Options," Journal of Financial Econometrics, Oxford University Press, vol. 12(1), pages 3-46.
    7. Sergio Zúñiga, 1999. "Modelos de Tasas de Interés en Chile: Una Revisión," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 36(108), pages 875-893.
    8. Sandrine Lardic & Claire Gauthier, 2003. "Un modèle multifactoriel des spreads de crédit : estimation sur panels complets et incomplets," Économie et Prévision, Programme National Persée, vol. 159(3), pages 53-69.
    9. René Garcia & Richard Luger & Eric Renault, 2000. "Asymmetric Smiles, Leverage Effects and Structural Parameters," Working Papers 2000-57, Center for Research in Economics and Statistics.
    10. Bettis, J. Carr & Bizjak, John & Coles, Jeffrey L. & Kalpathy, Swaminathan, 2018. "Performance-vesting provisions in executive compensation," Journal of Accounting and Economics, Elsevier, vol. 66(1), pages 194-221.
    11. Hi Jun Choe & Jeong Ho Chu & So Jeong Shin, 2014. "Recombining binomial tree for constant elasticity of variance process," Papers 1410.5955, arXiv.org.
    12. Rodriguez, Ricardo J., 2002. "Lognormal option pricing for arbitrary underlying assets: a synthesis," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(3), pages 577-586.
    13. Monteiro, Ana Margarida & Tutuncu, Reha H. & Vicente, Luis N., 2008. "Recovering risk-neutral probability density functions from options prices using cubic splines and ensuring nonnegativity," European Journal of Operational Research, Elsevier, vol. 187(2), pages 525-542, June.
    14. Shuang Xiao & Guo Li & Yunjing Jia, 2017. "Estimating the Constant Elasticity of Variance Model with Data-Driven Markov Chain Monte Carlo Methods," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(01), pages 1-23, February.
    15. Andrea Pascucci & Marco Di Francesco, 2005. "On the complete model with stochastic volatility by Hobson and Rogers," Finance 0503013, University Library of Munich, Germany.
    16. Chiara D'Alpaos & Cesare Dosi & Michele Moretto, 2005. "Concession lenght and investment timing flexibility," Working Papers ubs0502, University of Brescia, Department of Economics.
    17. Cimpoiasu, Rodica, 2018. "New candidates for arbitrage-free stock price models via generalized conditional symmetry method," Applied Mathematics and Computation, Elsevier, vol. 333(C), pages 460-466.
    18. Panagiotidis, Theodore & Printzis, Panagiotis, 2020. "What is the investment loss due to uncertainty?," Global Finance Journal, Elsevier, vol. 45(C).
    19. Iglesias Vázquez, E.M. & Arranz Pérez, M., 2001. "Análisis de las relaciones entre el tipo de interés a corto plazo y su incertidumbre en Alemania, España y Suiza," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 19, pages 37-47, Diciembre.
    20. Carpenter, Jennifer N., 1998. "The exercise and valuation of executive stock options," Journal of Financial Economics, Elsevier, vol. 48(2), pages 127-158, May.

    More about this item

    Keywords

    Capital asset pricing model; Option pricing; Planning horizon; Incomplete markets;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

    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:eee:finlet:v:8:y:2011:i:4:p:213-219. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    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.