Option Pricing with Economic Feasibility


Asset pricing under the certainty equivalent approach framework always raises the current value of the asset with the riskless rate first, followed immediately by risk adjustments. Clearly, this type of arrangement does not apply to assets that are expecting to lose values if it were to adhere to feasible economic reasoning. By using the put-call parity relationship and its underlying law of no arbitrage, the needed expected rates of return for the job of option pricing can thus be obtained. This study suggests a new model in old fashion, which can better satisfy the empirical criticism of the Black-Scholes option pricing model.

Share and Cite:

Y. Yu, "Option Pricing with Economic Feasibility," Modern Economy, Vol. 4 No. 1, 2013, pp. 73-76. doi: 10.4236/me.2013.41009.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] Y. Yu, “The Asset Pricing System,” Modern Economy, Vol. 3, No. 5, 2012, pp. 473-480. doi:10.4236/me.2012.35062
[2] F. Black and M. Scholes, “The Pricing of Options and Corporate Liabilities,” Journal of Political Economy, Vol. 81, No. 3, 1973, pp. 637-659. doi:10.1086/260062
[3] J. Cox, S. Ross and M. Rubinstein, “Option Pricing: A Simplified Approach,” Journal of Financial Economics, Vol. 7, No. 3, 1979, pp. 229-263. doi:10.1016/0304-405X(79)90015-1
[4] E. Dimson and M. Mussarian, “Three Centuries of Asset Pricing,” Journal of Banking & Finance, Vol. 23, No. 12, 1999, pp. 1745-1769. doi:10.1016/S0378-4266(99)00037-0
[5] G. W. Kutner, “Black-Scholes Revisited: Some Important Details,” Financial Review, Vol. 23, No. 1, 1988, pp. 95-104. doi:10.1111/j.1540-6288.1988.tb00777.x
[6] L. W. Jr. Smith, “Option Pricing,” Journal of Financial Economics, Vol. 3, No. 1/2, 1976, pp. 3-51.
[7] J. MacBeth and L. Merville, “An empirical Examination of the Black-Scholes Call Option Pricing Model,” Journal of Finance, Vol. 34, No. 5, 1979, pp. 1173-1186. doi:10.1111/j.1540-6261.1979.tb00063.x

Copyright © 2023 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.