In this paper we present drawbacks of the Black-Scholes option pricing theory. Shorter version of this paper were announced in [8]. Black-Scholes option theory represents unified construction of no arbitrage pricing. It is common to think that in the theory Black-Scholes price represents the...

This paper considers the problem of European option pricing in the presence of proportional transaction costs when the price of the underlying follows a jump diffusion process. Using an approach that is based on maximization of the expected utility of terminal wealth, we transform the option...

In reaction to the well-known stylized facts observed in market data for stocks and options, a multitude of option pricing models beyond Black-Scholes (BS) have been developed relaxing the strict BS assumptions. While these models by construction outperform the BS model in terms of fitting...

We examine the distribution of realized Bitcoin daily log-returns and find significantly-thin tails. From there we construct a simple connection back to traditional volatility modelling. And then we discuss how this connection can serve as a foundation to leverage existing derivative quant...

If a discretely formulated asset pricing model rivals efficacy of the Black and Scholes (1973) option pricing model, with canonical properties of option prices satisfied, rather counterfactually it spans a support space for call option prices that is continuous. Absent any directness of modeling...

This paper is an overview of empirical options research, with primary emphasis on research into systematic stochastic volatility and jump risks relevant for pricing stock index options. The paper reviews evidence from time series analysis, option prices and option price evolution regarding those...

We show that a dynamic model of investment and capital structure choices, where the firm faces real and financial frictions, can generate option prices and implied volatilities that are in line with those of the average optionable stock. As the balance between the fundamental economic forces...

The common practice of using different volatilities for options of different strikes in the Black-Scholes (1973) model imposes inconsistent assumptions on underlying securities. The phenomenon is referred to as the volatility smile. This paper addresses this problem by replacing the Brownian...

This study compares the performances of neural network and Black-Scholes models in pricing BIST30 (Borsa Istanbul) index call and put options with different volatility forecasting approaches. Since the volatility is the key parameter in pricing options, GARCH (Generalized Autoregressive...

The hedging argument of Black and Scholes (1973) hinges on the assumption that a continuously rebalanced asset portfolio satisfies the continuous-time self-financing condition. This condition, which is a special case of the continuous-time budget equation of Merton (1971), is believed to...