Option pricing: Stock price, stock velocity and the acceleration Lagrangian
Belal E. Baaquie,
Xin Du and
Jitendra Bhanap
Physica A: Statistical Mechanics and its Applications, 2014, vol. 416, issue C, 564-581
Abstract:
The industry standard Black–Scholes option pricing formula is based on the current value of the underlying security and other fixed parameters of the model. The Black–Scholes formula, with a fixed volatility, cannot match the market’s option price; instead, it has come to be used as a formula for generating the option price, once the so called implied volatility of the option is provided as additional input. The implied volatility not only is an entire surface, depending on the strike price and maturity of the option, but also depends on calendar time, changing from day to day. The point of view adopted in this paper is that the instantaneous rate of return of the security carries part of the information that is provided by implied volatility, and with a few (time-independent) parameters required for a complete pricing formula.
Keywords: Stock price; Stock velocity; Quantum finance; Option pricing; Acceleration Lagrangian (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:416:y:2014:i:c:p:564-581
DOI: 10.1016/j.physa.2014.09.019
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