The Impact on Option Pricing of Specification Error in the Underlying Stock Price Returns (Classic Reprint) - Softcover

Inhaltsangabe

Misspecified stock return models can distort option values and variance estimates—and here’s how the issue unfolds in clear terms.

This book explains a framework where stock prices move by both normal, continuous changes and occasional jumps caused by new information. It shows how using a standard Black-Scholes approach can misprice options when jumps matter, and it walks through the math and its practical implications with careful examples and simulations. The result is a concrete look at why model choice matters for traders, risk managers, and students of financial markets.

• Learn how continuous and jump components of stock moves interact to affect option prices
• See when the Black-Scholes formula may give misleading values and why
• Explore how variance estimation changes under misspecified dynamics
• Review practical implications for option hedging and risk assessment

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