Bayesian Analysis of the Black-Scholes Option Price

Theofanis Darsinos () and S. E. Satchell

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This paper investigates the statistical properties of the Black-Scholes option price under a Bayesian approach. We incorporate randomness, both in the price process and in volatility, to derive the prior and posterior densities of a European call option. Expressions for the density of the option price conditional on the sample estimates of volatility and on the asset price respectively, are also derived. Numerical results are presented to compare how the dispersion of the option price changes in the transition from prior to posterior information, where information may be price or sample variance or both.

Pages: 37
Date: 2001-01
New Economics Papers: this item is included in nep-ecm and nep-fin
Note: EM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/wp0102.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:0102

Access Statistics for this paper

More papers in Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
Bibliographic data for series maintained by Jake Dyer ().