Popovic, Ray; Goldsman, David - In: European Journal of Operational Research 218 (2012) 1, pp. 124-131
We quantify the effects on contingent claim valuation of using an estimator for the unknown volatility σ of a geometric Brownian motion (GBM) process. The theme of the paper is to show what difficulties can arise when failing to account for estimation risk. Our narrative uses a direct estimator...