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Some new results on when extra risk strictly increases an option's value

Huang, James and Zhang, Deyuan (2013) Some new results on when extra risk strictly increases an option's value. Journal of Futures Markets, 33 (1). pp. 44-54. ISSN 0270-7314

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Abstract

In this paper, we present some new results on when extra risk strictly increases an option's value. We give a necessary and sufficient condition for a mean-preserving spread to strictly increase an option's value. We also give a necessary and sufficient condition for a risk change to strictly increase the values of options with strike prices in an open interval while preserving the values of all other options. These two results significantly improve the results given by Rasmusen (2007) (When does extra risk strictly increase an option's value? Review of Financial Studies, 20, 1647–1667).

Item Type: Article
Journal or Publication Title: Journal of Futures Markets
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Departments: Lancaster University Management School > Accounting & Finance
ID Code: 58901
Deposited By: ep_importer_pure
Deposited On: 05 Oct 2012 10:31
Refereed?: Yes
Published?: Published
Last Modified: 17 Jun 2014 10:21
Identification Number:
URI: http://eprints.lancs.ac.uk/id/eprint/58901

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