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Option Pricing with Two Risky Assets and Financial Leverage

This study presents an alternative option pricing theory to the Black-Scholes model in which the balance sheet is composed of both short-term and fixed assets and by both long-term debt and equity. The resulting model is used to examine the volatility smile. It is demonstrated that the smile characteristics can be produced by choices of the parameters of the model. Hang Seng Index data is then used to investigate whether actual index and option prices can be compatible with the model's specifications
Year of publication:
[2002]
Authors: Ryan, Peter
Other Persons: Guo, Chen (contributor) ; Hoontrakul, Pongsak (contributor)
Publisher: [2002]: [S.l.] : SSRN
freely available
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