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Implicit Bayesian Inference Using Option Prices

✍ Scribed by Gael M. Martin; Catherine S. Forbes; Vance L. Martin


Book ID
111039918
Publisher
John Wiley and Sons
Year
2005
Tongue
English
Weight
224 KB
Volume
26
Category
Article
ISSN
0143-9782

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This paper shows that many of the empirical biases of the Black and Scholes option pricing model can be explained by Bayesian learning e ects. In the context of an equilibrium model where dividend news evolve on a binomial lattice with unknown but recursively updated probabilities we derive closed-f