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Option Pricing Bounds in Discrete Time
Author(s) -
PERRAKIS STYLIANOS,
RYAN PETER J.
Publication year - 1984
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1984.tb02324.x
Subject(s) - arbitrage , dividend , discrete time and continuous time , mathematical economics , economics , stock (firearms) , stock price , extension (predicate logic) , upper and lower bounds , econometrics , mathematics , financial economics , computer science , statistics , series (stratigraphy) , finance , mechanical engineering , engineering , biology , programming language , paleontology , mathematical analysis
Upper and lower bounds are derived for call options traded at discrete intervals. These bounds are independent of assumptions on the stock price distribution other than a restriction satisfied by the stock being “non‐negative beta.” The development of the bounds relies on the single‐price law and arbitrage arguments. Both single‐period and multiperiod results are produced, and put option bounds follow by extension. The bounds exist as equilibrium values given a consensus on stock price distribution; they are also valid for empirical studies, being adjustable for dividends and commissions.