In this addendum to Carey (2005), we draw several more analogies with the Black-Scholes model. We derive the characteristic function of the underlying log process as a function of the volatilities of all orders. Option prices are shown to satisfy an infinite-order version of the Black-Scholes...

An anchoring adjusted currency option pricing formula is developed in which the risk of the underlying currency is used as a starting point which gets adjusted upwards to arrive at the currency call risk. Anchoring bias implies that such adjustments are insufficient. The new formula converges to...

People think by analogies and comparisons. Such way of thinking, termed coarse thinking by Mullainathan et al [Quarterly Journal of Economics, May 2008] is intuitively very appealing. We derive a new option pricing formula based on the assumption that the market consists of coarse thinkers as...

People tend to think by analogies and comparisons. Such way of thinking, termed coarse thinking by Mullainathan et al [Quarterly Journal of Economics, May 2008] is intuitively very appealing. We develop a new option pricing model based on the idea that the market consists of coarse thinkers as...

We put forward a new option pricing formula based on the notion that people tend to think by analogies and comparisons. The new formula differs from the Black Scholes formula due to the appearance of a parameter in the formula that captures the risk premium on the underlying. The new formula,...

The standard measures of distress risk ignore the fact that firm defaults are correlated and that some defaults are more likely to occur in bad times. We use risk premium computed from corporate credit spreads to measure a firm’s exposure to systematic variation in default risk. Unlike...

In the 1990s, companies collected billions in premiums from peculiarly structured put options written on their own stock while almost all of these puts expired worthless. Buyers of these options, primarily �nancial intermediaries, lost money as a result. Although these losses might seem...

A new alternative diffusion model for asset price movements is presented. In contrast to the popular approach of Brownian motion it proposes deterministic diffusion for the modelling of stock price movements. These diffusion processes are a new area of physical research and can be created by the...

This study uses a vector error correction (VEC) model to examine price-volume relationships between open outcry and e-trading at the Chicago Board of Trade. We test whether equilibrium price corrections on one system are independent of the other, and whether this price behavior is more sensitive...

This article investigates price and trading volume relations for near term crude oil contracts at the New York Mercantile Exchange (NYMEX). The study investigates the informativeness of after-hours trading under the prior assumption that daytime and after-hours trading sessions are completely...