Vulnerable option pricing under heterogeneity and its applications in Taiwan warrant market

Yu Hong Liu, I. Ming Jiang

Research output: Contribution to journalArticle

Abstract

The European option pricing formula proposed by Black and Scholes in 1973 is a new milestone in financial Vfield. However, many basic assumptions used to establish this pricing formula are unrealistic in real trading market. Though many researchers after Black and Scholes have proposed numerous solutions to resolve the drawback of Black-Scholeś formula, few have mentioned the topics of heterogeneous beliefs of investors and the counterparty risk at the same time. This study proposes a new method to resolve these problems and then investigates the robustness of the formula by using the warrant in Taiwan stock market. The results clearly demonstrate how the proposed model leads to a straightforward extension of the existing asset pricing models in a fairly easy way.

Original languageEnglish
Pages (from-to)243-251
Number of pages9
JournalInternational Journal of Fuzzy Systems
Volume12
Issue number3
Publication statusPublished - 2010 Sep 1

All Science Journal Classification (ASJC) codes

  • Software
  • Theoretical Computer Science
  • Computational Theory and Mathematics
  • Artificial Intelligence

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