OPTION PRICING BASED ON THE CONCEPT OF INSURANCE: MARKET MODELS-FREE METHODS THAT GIVE AS SPECIAL CASE THE BLACK- SCHOLES OPTION PRICING

Konstantinos Kyritsis and N Antoniadis
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Konstantinos Kyritsis: TEI - Technological Educational Institute of Epirus
N Antoniadis: TEI - Technological Educational Institute of Epirus

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Abstract: In this paper, alternative methods to the Black-Scholes method of option pricing are given, yielding the latter as special case. The alternative methods are similar to the methods of insurance policies pricing in actuarial mathematics. The choice of the model that represents the changes of the price of the underlying exchange market is left open. Numerical examples are given and the proposed method is compared to the traditional Black-Scholes method. The resulting advantages are discussed.

Date: 2005
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Published in the Journal Review of Economic Sciences, 2005, 8, pp.177 - 190

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