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Computing the Constant Elasticity of Variance Option Pricing Formula
Author(s) -
SCHRODER MARK
Publication year - 1989
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.1540-6261.1989.tb02414.x
Subject(s) - elasticity (physics) , constant (computer programming) , mathematics , variance (accounting) , simple (philosophy) , distribution (mathematics) , mathematical optimization , mathematical analysis , computer science , economics , physics , thermodynamics , philosophy , accounting , programming language , epistemology
This paper expresses the constant elasticity of variance option pricing formula in terms of the noncentral chi‐square distribution. This allows the application of well‐known approximation formulas and the derivation of a whole class of closed‐form solutions. In addition, a simple and efficient algorithm for computing this distribution is presented.