The American put option valued analytically

Article Abstract:

An analytic formula is presented which satisfies the partial differential equation and boundary conditions that characterize the American put valuation problem; the hedge ratio and all other derivatives of the formula with respect to its parameters are presented. The formula implies an exact duplicating portfolio for the American put comprising discount bonds and stock sold short, and is extended to consider put options on stocks paying cash dividends. It is shown that the formula can be evaluated to arbitrary accuracy by a polynomial expression similar to that used to evaluate the Black-Scholes European put and call option formulae. The hedge ratio and cash dividend adjustments can be similarly computed. The same solution and evaluation techniques can be used to value other complex contracts, such as currency options, options an futures, coupon bonds, or warrants on dividend paying stocks. stocks.

Methods, Hedging (Finance), Valuation

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Stock Market Returns and Real Activity: A Note

Article Abstract:

The influence of economic activity fluctuations on stock market prices is examined. Granger Causality Test are used to determined the impact on information of innovations stock. Price changes provide a reliable indicator of information arrival.

Stock-exchange, Stock exchanges, Statistics

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Option Pricing When the Underlying Asset Returns a Below-Equilibrium Rate of Return: A Note

Article Abstract:

A correct option pricing formula is provided for call options when the earnings are below investor demand. Even if replication is possible it is not efficient. The widely held Black-Scholes option pricing formula needs modification.

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