This paper introduces a class of two counters of jumps option pricing models. The stock price follows a jump-diffusion process with price jumps up and price jumps down, where each type of jumps can have different means and standard deviations. Price jumps can be negatively autocorrelated as it...

This paper extends the literature on Risk-Neutral Valuation Relationships (RNVR's) to derive valuation formulae for options on zero coupon bonds when interest rates are stochastic. We develop Forward-Neutral Valuation Relationships (FNVR's) for the transformed-bounded random walk class. Our...

This paper generalizes the seminal Cox-Ross-Rubinstein (1979) binomial option pricing model to all members of the class of transformed-binomial pricing processes. Our investigation addresses issues related with asset pricing modeling, hedging strategies, and option pricing. We derive explicit...

<section xml:id="fut21616-sec-0001"> This study uses equilibrium arguments to derive closed‐form solutions for the price of European call and put options written on an individual stock when shareholders might lose all their claims on the firm. The stock price accounts for both a random probability of bankruptcy and a random...</section>

The estimation of the cost of equity capital (COE) is one of the most important tasks in financial management. Existing approaches compute the COE using historical data, i.e. they are backward‐looking methods. This study derives a method to calculate forward‐looking estimates of the COE...

This study derives a simple square root option pricing model using a general equilibrium approach in an economy where the representative agent has a generalized logarithmic utility function. Our option pricing formulae, like the Black–Scholes model, do not depend on the preference parameters...

This article generalizes the seminal Cox‐Ross‐Rubinstein (1979) binomial option pricing model to all members of the class of transformed‐binomial pricing processes. The investigation addresses issues related with asset pricing modeling, hedging strategies, and option pricing. Formulas are...

This paper explores the effect of extreme events or big jumps downwards and upwards on the jump‐diffusion option pricing model of Merton (1976). It starts by obtaining a special case of the jump‐diffusion model where there is a positive probability of a big jump downwards. Then, it obtains a...