Initial offerings of options

Sigrid M. Müller

No 2001,22, SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes

Abstract: This paper considers the introduction of stock options in an (dynamically) incomplete securities market made up of a riskless bond and the stock. The stock price follows a geometric Brownian motion with constant drift. However, there is incomplete information about the unknown stochastic volatility. The option price is determined by a uniform-price auction. Thus an option pricing formula results from the interaction of market participants relying on private information on the unknown stochastic volatility under an explicit market structure. This paper incorporates market microstructure considerations into an extended Black-Scholes model with incomplete information on the underlying volatility. It relies on the growing importance of auctionlike trading rules in financial markets.

JEL-codes: C72 D44 D82 G13 (search for similar items in EconPapers)
Date: 2001
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/62703/1/724875336.pdf (application/pdf)

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:zbw:sfb373:200122

Access Statistics for this paper

More papers in SFB 373 Discussion Papers from Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().