A key limitation of the Black Scholes model is that it assumes a complete market (claims are replicable with existing assets). We put forward a new option pricing formula that does not require market completeness. The new formula is based on the idea that people rely on, what can be termed, the principle of analogy making while valuing assets. The principle of analogy making says that similar a...

this book received such publicity at the time of its publication that there must be few who do not know what it is about. Briefly, it is the result of a four years study by a research team, headed by Dr. Pauline Morris, principal lecturer in Sociology at the Borough Polytechnic, London, of the physical, psychological and sociological environment which institutions provide for the mentally handi...

A lookback option is an exotic that allows investors to look back at the underlying prices occurring over life of option, and exercise right assets optimal point. This paper proposes a mean-reverting stock model investigate in uncertain environment. The call put options pricing formulas are derived, corresponding numerical algorithms designed compute these two optio...

We investigate qualitative and quantitative behavior of a solution to the problem of pricing American style of perpetual put options. We assume the option price is a solution to a stationary generalized Black-Scholes equation in which the volatility may depend on the second derivative of the option price itself. We prove existence and uniqueness of a solution to the free boundary problem. We de...

Brownian motion and normal distribution have been widely used in the Black–Scholes option-pricing framework to model the return of assets. However, two puzzles emerge from many empirical investigations: the leptokurtic feature that the return distribution of assets may have a higher peak and two (asymmetric) heavier tails than those of the normal distribution, and an empirical phenomenon called...

We develop a simple robust link between deep out-of-the-money American put options on a company’s stock and a credit insurance contract on the company’s bond. We assume that the stock price stays above a barrier B before default but drops below a lower barrier A after default, thus generating a default corridor [A, B] that the stock price can never enter. Given the presence of this default corr...