✦ LIBER ✦

Comment on “A new simple square root option pricing model”

✍ Scribed by Hwa-Sung Kim; Jangkoo Kang; Jeongwoo Shin

Publisher: John Wiley and Sons
Year: 2011
Tongue: English
Weight: 77 KB
Volume: 32
Category: Article
ISSN: 0270-7314
DOI: 10.1002/fut.20526

No coin nor oath required. For personal study only.

✦ Synopsis

Abstract

Câmara A. and Wang Y.‐H. (2010) introduce a simple square root option pricing model where the square root of the stock price is governed by a normal distribution. They show that their three‐parameter option pricing model can outperform the Black–Scholes option pricing model. We demonstrate that their assumption possesses an internal inconsistency in that the square root of the stock price can take on negative values. We generalize and revise their assumption so that the internal inconsistency can be avoided, and introduce a new square root option pricing model. The difference in option prices calculated from the two models may not be trivial. © 2011 Wiley Periodicals, Inc. Jrl Fut Mark

📜 SIMILAR VOLUMES

Reply to “A comment on “A new simple squ

Reply to “A comment on “A new simple square root option pricing model””

✍ Yaw-Huei Wang 📂 Article 📅 2011 🏛 John Wiley and Sons 🌐 English ⚖ 58 KB

Helpful comments and suggestions by San-Lin Chung are greatly appreciated.

A new simple square root option pricing

A new simple square root option pricing model

✍ António Câmara; Yaw-huei Wang 📂 Article 📅 2010 🏛 John Wiley and Sons 🌐 English ⚖ 145 KB

## Abstract This study derives a simple square root option pricing model using a general equilibrium approach in an economy where the representative agent has a generalized logarithmic utility function. Our option pricing formulae, like the Black–Scholes model, do not depend on the preference param