Distributional divergence, statistical experiments and consequences in option pricing. Issue 1 (2nd January 2018)

• Record Type: Journal Article
• Authors: Yatracos, Yannis G.
• Is Part Of: Statistics. Volume 52:Issue 1(2018)
• Page Start: 18
• Page End: 33
• Publication Date: 2018-01-02
• Subjects: Distributional divergence -- infinitely divisible distribution -- market's informational efficiency -- market risk premium -- risk neutral probability -- statistical experiment; Mathematical statistics -- Periodicals; 519.505
• DOI: 10.1080/02331888.2017.1369079
• Languages: English
• ISSNs: 0233-1888

Abstract

ABSTRACT: Distributional Divergence and Statistical Experiments are used herein for a positive stochastic process. This framework provides, under mild assumptions, Risk Neutral Probability (-ies)P ∗ for a stock price process which does not have necessarily either to satisfy a Stochastic Differential Equation or to follow a model, both non-realistic assumptions. The results contribute in understanding the relation betweenP ∗, statistical contiguity and market's informational efficiency.P ∗ -price of European option is obtained, confirming the universal quote of the Black–Scholes–Merton price for the class of calm stock prices that includes log-normal price. Other consequences are presented.