A FORWARD LOOKING, SINGULAR PERTURBATION APPROACH TO PRICING OPTIONS UNDER MARKET UNCERTAINTY AND TRADING NOISE

In this article we examine the pricing of options when trading noise and uncertainty in the options markets invalidates the assumption that the price of the option depends solely on the price of the underlying security (or any set of underlying state variables). We show that the introduction of trading noise in the options market affects the call-put parity relationship, and can also contribute to generate implied volatility skews.

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Year of publication:	2005
Authors:	SOBEHART, JORGE R.
Published in:	International Journal of Theoretical and Applied Finance (IJTAF). - World Scientific Publishing Co. Pte. Ltd., ISSN 1793-6322. - Vol. 08.2005, 05, p. 635-658
Publisher:	World Scientific Publishing Co. Pte. Ltd.
Subject:	Market uncertainty \| trading noise \| perturbation analysis \| options pricing

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Extent:	application/pdf text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005060236