In this paper we reconsider the pricing of options in incomplete continuous time markets.We first discuss option pricing with idiosyncratic stochastic volatility.This leads, of course, to an averaged Black-Scholes price formula.Our proof of this result uses a new formalization of idiosyncraticy which encapsulates other definitions in the literature.Our method of proof is subsequently generalized to other forms of incompleteness and systematic (i.e. non-idiosyncratic) information.Generally this leads to an option pricing formula which can be expressed as the average of a complete markets formula.

Original language | English |
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Place of Publication | Tilburg |
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Publisher | Finance |
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Number of pages | 20 |
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Volume | 1996-19 |
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Publication status | Published - 1996 |
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Name | CentER Discussion Paper |
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Volume | 1996-19 |
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- option pricing
- incomplete markets