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On Hidden Problems of Option Pricing

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  • Olkhov, Victor

Abstract

This paper gives new look on option pricing and Black-Scholes-Merton equation within economic space point of view. We argue reasons for economic space definition and it’s application for options pricing. Our approach allows review classical Black-Sholes-Merton model and discovers hidden complexity of option pricing. We derive Black-Sholes-Merton equation on n-dimensional economic space and argue new tough problems.

Suggested Citation

  • Olkhov, Victor, 2016. "On Hidden Problems of Option Pricing," MPRA Paper 87173, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:87173
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    File URL: https://mpra.ub.uni-muenchen.de/87173/1/MPRA_paper_87173.pdf
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    References listed on IDEAS

    as
    1. 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..
    2. Olkhov, Victor, 2016. "Finance, risk and economic space," MPRA Paper 87172, University Library of Munich, Germany.
    3. Olkhov, Victor, 2016. "On Economic Space notion," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 372-381.
    4. Masahisa Fujita, 2010. "The Evolution Of Spatial Economics: From Thünen To The New Economic Geography," The Japanese Economic Review, Japanese Economic Association, vol. 61(1), pages 1-32, March.
    5. François Perroux, 1950. "Economic Space: Theory and Applications," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 64(1), pages 89-104.
    6. 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.
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    Cited by:

    1. Olkhov, Victor, 2019. "New Essentials of Economic Theory," MPRA Paper 95065, University Library of Munich, Germany.
    2. Olkhov, Victor, 2020. "Classical Option Pricing and Some Steps Further," MPRA Paper 105431, University Library of Munich, Germany, revised 28 Dec 2020.
    3. Olkhov, Victor, 2019. "New Essentials of Economic Theory III. Economic Applications," MPRA Paper 94053, University Library of Munich, Germany.

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    More about this item

    Keywords

    Option Pricing; Black-Scholes-Merton Equations; Economic Space;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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