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Option Valuation in the Presence of Market Imperfections

Option Valuation in the Presence of Market Imperfections

Andreas Bell
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The Black/Scholes model and other option valuation concepts are enjoying widespread application by theoreticians and practitioners. However, one must not ignore that "model values" do not necessarily meet "market prices." The reason is that the model rationales are based on a perfect, frictionless market environment that no options market in reality can ever provide. This book describes and discusses the numerous market imperfections found in reality and the effects they have on option prices. Many of these factors are not obvious at first glance . It is shown how these factors can cause the significant, systematic deviations of market prices from model values that are found in a variety of empirical studies. Alternative models that have been devised in an attempt to alleviate these biases are shown to be unable to capture them in a consistent fashion. This work provides the theoretician with a comprehensive survey and discussion of the current academic knowledge on the subject and its implications for option market efficiency. For the practitioner, the book opens the black box of option valuation models and sharpens the eye for the difference between theoretical elegance and practical applicability.
Pages
255
Format
Paperback
Publisher
Peter Lang Gmbh, Internationaler Verlag Der Wissenschaften
Release
February 01, 1993
ISBN
3631456603
ISBN 13
9783631456606

Option Valuation in the Presence of Market Imperfections

Andreas Bell
0/5 ( ratings)
Read Download
The Black/Scholes model and other option valuation concepts are enjoying widespread application by theoreticians and practitioners. However, one must not ignore that "model values" do not necessarily meet "market prices." The reason is that the model rationales are based on a perfect, frictionless market environment that no options market in reality can ever provide. This book describes and discusses the numerous market imperfections found in reality and the effects they have on option prices. Many of these factors are not obvious at first glance . It is shown how these factors can cause the significant, systematic deviations of market prices from model values that are found in a variety of empirical studies. Alternative models that have been devised in an attempt to alleviate these biases are shown to be unable to capture them in a consistent fashion. This work provides the theoretician with a comprehensive survey and discussion of the current academic knowledge on the subject and its implications for option market efficiency. For the practitioner, the book opens the black box of option valuation models and sharpens the eye for the difference between theoretical elegance and practical applicability.
Pages
255
Format
Paperback
Publisher
Peter Lang Gmbh, Internationaler Verlag Der Wissenschaften
Release
February 01, 1993
ISBN
3631456603
ISBN 13
9783631456606

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