Further Results on the Constant Elasticity of Variance Call Option Pricing Model

David C. Emanuel and James D. MacBeth

Journal of Financial and Quantitative Analysis, 1982, vol. 17, issue 4, 533-554

Abstract: The Black-Scholes [4] call option model is a member of the class of constant elasticity of variance call option models proposed by Cox [6]. While the Black-Scholes model assumes that the volatility or instantaneous variance of return is constant through time, the other members of the class allow the volatility to change with the stock price. This property is of interest because empirical evidence suggests that returns to common stock are heteroscedastic and also that volatilities, implied from the Black-Scholes model and market prices of call options, are not constant.

Date: 1982
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