Franke, Günter; Huang, James; Stapleton, Richard - Zentrum für Finanzen und Ökonometrie, Fachbereich … - 2007
The Black-Scholes model is based on a one-parameter pricing kernel with constant elasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel with at least two parameters. We price European-style options on assets whose probability distributions have...