Title: | The Pricing of Market-to-Market Contingent Claims in a No-Arbitrage Economy |
Authors: | Satchell, Stephen E. Stapleton, Richard C. Subrahmanyam, Marti G. |
Issue Date: | 7-Feb-1997 |
Series/Report no.: | FIN-96-037 |
Abstract: | This paper assumes that the underlying asset prices are lognormally distributed and drives necessary and sufficient conditions for the valuation of options using a Black-Scholes type methodology. It is shown that the price of a futures-style, market-to-market option is given by Black’s formula if the pricing kernel is lognormally distributed. Assuming that this condition is fulfilled, it is then shown that the Black-Scholes formula prices a spot-settled contingent claim, if the interest-rate accumulation factor is lognormally distributed. Otherwise, the Black-Scholes formula holds if the product of the pricing kernel and the interest-rate accumulation factor is lognormally distributed. |
URI: | http://hdl.handle.net/2451/27095 |
Appears in Collections: | Finance Working Papers |
Files in This Item:
File | Description | Size | Format | |
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wpa96037.pdf | 864.1 kB | Adobe PDF | View/Open |
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