ESG Financial Market with Informed Traders within the Bachelier–Black–Scholes–Merton Model

Nancy Asare Nyarko; Bhathiya Divelgama; Peter Yegon; W. Brent Lindquist; Abootaleb Shirvani; Svetlozar T. Rachev; Frank J. Fabozzi

doi:10.20900/jsr20250022

ESG Financial Market with Informed Traders within the Bachelier–Black–Scholes–Merton Model

Nancy Asare Nyarko, Bhathiya Divelgama, Peter Yegon, W. Brent Lindquist, Abootaleb Shirvani, Svetlozar T. Rachev, Frank J. Fabozzi

Mathematics

Research output: Contribution to journal › Article › peer-review

Abstract

This study seeks to advance the theory of dynamic asset pricing by introducing asset valuation, adjusted by environmental, social and governance (ESG) ratings, within a unified Bachelier–Black–Scholes–Merton market model, and developing option valuation in both continuous-time and discrete-time (binomial pricing tree) frameworks. An empirical study based on call option prices for assets selected from the Nasdaq-100 develops implied values for the main ESG parameter in the pricing model. For these stocks, option traders have in-the-money ESG valuations that are lower than the spot price. Within the discrete-time framework, we demonstrate how an informed trader can adopt a futures trading strategy to optimize an effective dividend stream.

Original language	English
Article number	e250022
Journal	Journal of Sustainability Research
Volume	7
Issue number	2
DOIs	https://doi.org/10.20900/jsr20250022
State	Published - Jun 2025

Keywords

Bachelier’s model
Black–Scholes–Merton model
ESG finance
binomial pricing trees
option prices

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10.20900/jsr20250022

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title = "ESG Financial Market with Informed Traders within the Bachelier–Black–Scholes–Merton Model",

abstract = "This study seeks to advance the theory of dynamic asset pricing by introducing asset valuation, adjusted by environmental, social and governance (ESG) ratings, within a unified Bachelier–Black–Scholes–Merton market model, and developing option valuation in both continuous-time and discrete-time (binomial pricing tree) frameworks. An empirical study based on call option prices for assets selected from the Nasdaq-100 develops implied values for the main ESG parameter in the pricing model. For these stocks, option traders have in-the-money ESG valuations that are lower than the spot price. Within the discrete-time framework, we demonstrate how an informed trader can adopt a futures trading strategy to optimize an effective dividend stream.",

keywords = "Bachelier{\textquoteright}s model, Black–Scholes–Merton model, ESG finance, binomial pricing trees, option prices",

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doi = "10.20900/jsr20250022",

language = "English",

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AU - Nyarko, Nancy Asare

AU - Divelgama, Bhathiya

AU - Yegon, Peter

AU - Lindquist, W. Brent

AU - Shirvani, Abootaleb

AU - Rachev, Svetlozar T.

AU - Fabozzi, Frank J.

PY - 2025/6

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N2 - This study seeks to advance the theory of dynamic asset pricing by introducing asset valuation, adjusted by environmental, social and governance (ESG) ratings, within a unified Bachelier–Black–Scholes–Merton market model, and developing option valuation in both continuous-time and discrete-time (binomial pricing tree) frameworks. An empirical study based on call option prices for assets selected from the Nasdaq-100 develops implied values for the main ESG parameter in the pricing model. For these stocks, option traders have in-the-money ESG valuations that are lower than the spot price. Within the discrete-time framework, we demonstrate how an informed trader can adopt a futures trading strategy to optimize an effective dividend stream.

AB - This study seeks to advance the theory of dynamic asset pricing by introducing asset valuation, adjusted by environmental, social and governance (ESG) ratings, within a unified Bachelier–Black–Scholes–Merton market model, and developing option valuation in both continuous-time and discrete-time (binomial pricing tree) frameworks. An empirical study based on call option prices for assets selected from the Nasdaq-100 develops implied values for the main ESG parameter in the pricing model. For these stocks, option traders have in-the-money ESG valuations that are lower than the spot price. Within the discrete-time framework, we demonstrate how an informed trader can adopt a futures trading strategy to optimize an effective dividend stream.

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ESG Financial Market with Informed Traders within the Bachelier–Black–Scholes–Merton Model

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Keywords

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