TY - JOUR
T1 - OPTION PRICING in MARKETS with INFORMED TRADERS
AU - Hu, Yuan
AU - Shirvani, Abootaleb
AU - Stoyanov, Stoyan
AU - Kim, Young Shin
AU - Fabozzi, Frank J.
AU - Rachev, Svetlozar T.
N1 - Publisher Copyright:
© 2020 World Scientific Publishing Company.
PY - 2020/9/1
Y1 - 2020/9/1
N2 - The objective of this paper is to introduce the theory of option pricing for markets with informed traders within the framework of dynamic asset pricing theory. We introduce new models for option pricing for informed traders in complete markets, where we consider traders with information on the stock price direction and stock return mean. The Black-Scholes-Merton option pricing theory is extended for markets with informed traders, where price processes are following continuous-diffusions. By doing so, the discontinuity puzzle in option pricing is resolved. Using market option data, we estimate the implied surface of the probability for a stock upturn, the implied mean stock return surface, and implied trader information intensity surface.
AB - The objective of this paper is to introduce the theory of option pricing for markets with informed traders within the framework of dynamic asset pricing theory. We introduce new models for option pricing for informed traders in complete markets, where we consider traders with information on the stock price direction and stock return mean. The Black-Scholes-Merton option pricing theory is extended for markets with informed traders, where price processes are following continuous-diffusions. By doing so, the discontinuity puzzle in option pricing is resolved. Using market option data, we estimate the implied surface of the probability for a stock upturn, the implied mean stock return surface, and implied trader information intensity surface.
KW - European call option prices for inform traders
KW - markets with informed traders
KW - Theory of option pricing
UR - http://www.scopus.com/inward/record.url?scp=85095122982&partnerID=8YFLogxK
U2 - 10.1142/S0219024920500375
DO - 10.1142/S0219024920500375
M3 - Article
AN - SCOPUS:85095122982
SN - 0219-0249
VL - 23
JO - International Journal of Theoretical and Applied Finance
JF - International Journal of Theoretical and Applied Finance
IS - 6
M1 - 2050037
ER -