General properties of option prices

Yaacov Z. Bergman, Bruce D. Grundy, Zvi Wiener

Research output: Contribution to journalArticlepeer-review

110 Scopus citations

Abstract

When the underlying price process is a one-dimensional diffusion, as well as in certain restricted stochastic volatility settings, a contingent claim's delta is bounded by the infimum and supremum of its delta at maturity. Further, if the claim's payoff is convex (concave), the claim's price is a convex (concave) function of the underlying asset's value. However, when volatility is less specialized, or when the underlying process is discontinuous or non-Markovian, a call's price can be a decreasing, concave function of the underlying price over some range, increasing with the passage of time, and decreasing in the level of interest rates.

Original languageAmerican English
Pages (from-to)1573-1610
Number of pages38
JournalJournal of Finance
Volume51
Issue number5
DOIs
StatePublished - Dec 1996

Fingerprint

Dive into the research topics of 'General properties of option prices'. Together they form a unique fingerprint.

Cite this