The Black-Scholesmodelis basedona one-parameter pricingkernel with constantelasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel withat leasttwo parameters.We price European-style optionson assets whose probability distributions have two unknown...

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...

We price European-style options on assets whose probability distributions have two unknown parameters. We assume a pricing kernel which also has two unknown parameters. When certain conditions are met, a two-dimensional risk-neutral valuation relationship exists for the pricing of these options:...

The Black-Scholesmodelis basedona one-parameter pricingkernel with constantelasticity. Theoretical and empirical results suggest declining elasticity and, hence, a pricing kernel withat leasttwo parameters.We price European-style optionson assets whose probability distributions have two unknown...