This paper constructs a closed-form generalization of the Black-Scholes model for the case where the short-term interest rate follows a stochastic Gaussian process. Capturing this additional source of uncertainty appears to have a considerable effect on option prices. We show that the value of...

This paper constructs a closed-form generalization of the Black-Scholes model for the case where the short-term interest rate follows a stochastic Gaussian process. Capturing this additional source of uncertainty appears to have a considerable effect on option prices. We show that the value of...

This paper introduces a real-time, instantaneous, forward-looking, implied ambiguity index. Ambiguity — the uncertainty of probabilities — is measured by the expected volatility of probabilities. Using option prices, the dynamic and continuous snapshot of the expected (implied) ambiguity in...