The binomial algorithm (Cox and Rubinstein, 1985) is an accepted theoretically justifiable standard for measuring the accuracy of American put option pricing algorithms. An important question is whether it also generates accurate estimates of the early exercise boundary (Lamberton, 1993). I show...

This paper has two purposes. First, it integrates the results that are currently available by presenting a unified method for establishing explicit option pricing formulae. It also thereby demonstrates a common link that connects these results and simplifies their derivation. Second, it derives...

The EMH is actually two hypotheses; the martingale and the sub-martingale hypothesis. This paper shows that in attempting to distinguish between these hypotheses, taking logs of prices before first· differencing implies that tests based upon the first-order serial correlation coefficient lose...

Recent results have characterized the class of continuous sample path stochastic processes admissible as equilibrium price processes in a frictionless, continuous trading market under a no arbitrage equilibrium. These results are not complete since the role of the Markov assumption, made by all...

Why is risk-neutral valuation (RNV), after all this time, still so hard to understand? Many have a hard time understanding, and therefore accepting the concept. This paper seeks to clarify the issue by interpreting some of the insights provided by the fundamental theorems of asset pricing, while...

This paper derives and numerically simulates maximum likelihood estimators for the drift in several important diffusion price models. The time series convergence properties of these estimators are compared to those of standard estimators including the geometric and arithmetic means. Merton...

I address the dichotomy between American put option pricing theory and the numerical algorithms designed to estimate American put option prices. The literature has focused only on pricing error. However, early exercise is the essence of American option pricing (exercising) and with it comes the...