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Probing Option Prices for Information

  • Hélyette Geman
  • Dilip B. Madan
  • Marc Yor
Article

Abstract

We present a methodology for extracting information from option prices when the market is viewed as knowledgeable. By expanding the information filtration judiciously and determining conditional characteristic functions for the log of the stock price, we obtain option pricing formulae which when fit to market data may reveal this information. In particular, we consider probing option prices for knowledge of the future stock price, instantaneous volatility, and the asymptotic dividend stream. Additionally the bridge laws developed are also useful for simulation based on stratified sampling that conditions on the terminal values of paths.

Keywords

bridge laws credit simulation Bessel process 

AMS 2000 Subject Classification

60G05 60G35 60J70 

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Copyright information

© Springer Science+Business Media, LLC 2007

Authors and Affiliations

  1. 1.BirkbeckUniversity of LondonLondonUK
  2. 2.ESSECCergy-Pontoise CedexFrance
  3. 3.Robert H. Smith School of BusinessUniversity of MarylandCollege ParkUSA
  4. 4.Laboratoire de ProbabilitésUniversité Paris VIParisFrance

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