### Abstract

Original language | English |
---|---|

Place of Publication | Tilburg |

Publisher | Finance |

Number of pages | 20 |

Volume | 1996-19 |

Publication status | Published - 1996 |

### Publication series

Name | CentER Discussion Paper |
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Volume | 1996-19 |

### Fingerprint

### Keywords

- option pricing
- incomplete markets

### Cite this

*On the Pricing of Options in Incomplete Markets*. (CentER Discussion Paper; Vol. 1996-19). Tilburg: Finance.

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**On the Pricing of Options in Incomplete Markets.** / Melenberg, B.; Werker, B.J.M.

Research output: Working paper › Discussion paper › Other research output

TY - UNPB

T1 - On the Pricing of Options in Incomplete Markets

AU - Melenberg, B.

AU - Werker, B.J.M.

N1 - Pagination: 20

PY - 1996

Y1 - 1996

N2 - 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.

AB - 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.

KW - option pricing

KW - incomplete markets

M3 - Discussion paper

VL - 1996-19

T3 - CentER Discussion Paper

BT - On the Pricing of Options in Incomplete Markets

PB - Finance

CY - Tilburg

ER -