Path-dependent, ESG-valued, option pricing in the Bachelier–Black–Scholes–Merton model

Bhathiya Divelgama, Nancy Asare Nyarko, W. Brent Lindquist, Svetlozar (Zari) Rachev and Blessing Omotade

Chapter 6 in Handbook of ESG Investing, 2026, pp 110-131 from Edward Elgar Publishing

Abstract: We extend the application of the Cherny–Shiryaev–Yor invariance principle to a unified Bachelier–Black–Scholes–Merton (BBSM) dynamic pricing model. This extension incorporates the influence of the history of the dynamics (i.e., the path dynamics) of a market index on stock price changes. We add an ESG rating component to the price of the risky asset (stock), in such a manner that the impact of the ESG rating on the stock valuation can be explored through variation in the value of a single parameter. We develop discrete, binary tree option pricing under this extended model. Using an empirical data set of 10 stocks chosen from the Nasdaq-100, we fit the model to stock price changes and compare model-based and published European call option prices.

Keywords: Path dependent pricing; Bachelier–Black–Scholes–Merton model; ESG rating; Binary tree; Cherny–Shiryaev–Yor invariance principle (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035322770
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.elgaronline.com/doi/10.4337/9781035322787.00011 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

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:elg:eechap:22853_6

Ordering information: This item can be ordered from
http://www.e-elgar.com

Access Statistics for this chapter

More chapters in Chapters from Edward Elgar Publishing
Bibliographic data for series maintained by Jack Sweeney ().