Can Bailout Improve the Economic Welfare? A Structural Derivation of the Option Price ()
ABSTRACT
We developed a game-theoretic approach
concerning the option pricing validity and tractability of which is ascertained
by deriving the Black-Scholes formula. We also applied this approach to the
welfare implications of the bailout policy. It is found that such a policy
always worsens the economic welfare. This is because of the moral hazardous behavior
of the buyer owing to the limited liability which is emphasized, for example,
by Arrow [1] and Stiglitz and Weiss [2].
Share and Cite:
M. Otaki, "Can Bailout Improve the Economic Welfare? A Structural Derivation of the Option Price,"
Theoretical Economics Letters, Vol. 3 No. 2, 2013, pp. 105-107. doi:
10.4236/tel.2013.32017.
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