Constant Elasticity of Variance Option Pricing Model: Integration and Detailed Derivation

Cheng-Few Lee (), Hong-Yi Chen () and John Lee ()
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Cheng-Few Lee: Rutgers University, Department of Finance and Economics, Rutgers Business School
Hong-Yi Chen: National Chengchi University, Department of Finance
John Lee: Center for PBBEF Research

Chapter Chapter 22 in Financial Econometrics, Mathematics and Statistics, 2019, pp 571-582 from Springer

Abstract: Abstract In this chapter, we review the renowned constant elasticity of variance (CEV) option pricing modelOption pricing model and the detailed derivations. We first show the details of the formulae needed in deriving the option pricingOption pricing and bridge the gaps in deriving the necessary formulae for the model. Second, we use a result by Feller to obtain the transition probability density function of the stock price at time T given its price at time t with t

Keywords: Constant elasticity of variance model; Noncentral chi-square distribution; Option pricing (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4939-9429-8_22

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DOI: 10.1007/978-1-4939-9429-8_22

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