On the multiplicity of option prices under CEV with positive elasticity of variance

Dirk Veestraeten ()
Additional contact information
Dirk Veestraeten: University of Amsterdam

Review of Derivatives Research, 2017, vol. 20, issue 1, No 1, 13 pages

Abstract: Abstract The discounted stock price under the Constant Elasticity of Variance model is not a martingale when the elasticity of variance is positive. Two expressions for the European call price then arise, namely the price for which put-call parity holds and the price that represents the lowest cost of replicating the call option’s payoffs. The greeks of European put and call prices are derived and it is shown that the greeks of the risk-neutral call can substantially differ from standard results. For instance, the relation between the call price and variance may become non-monotonic. Such unfamiliar behavior then might yield option-based tests for the potential presence of a bubble in the underlying stock price.

Keywords: Bubbles; Constant elasticity of variance; Option pricing; Put-call parity; Risk-neutral valuation (search for similar items in EconPapers)
JEL-codes: G13 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://link.springer.com/10.1007/s11147-016-9122-2 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:revdev:v:20:y:2017:i:1:d:10.1007_s11147-016-9122-2

Ordering information: This journal article can be ordered from
http://www.springer. ... 29/journal/11147/PS2

DOI: 10.1007/s11147-016-9122-2

Access Statistics for this article

Review of Derivatives Research is currently edited by Gurdip Bakshi and Dilip Madan

More articles in Review of Derivatives Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().