Geske, Robert and Roll, Richard (1984) On Valuing American Call Options with the Black‐Scholes European Formula. Journal of Finance, 39 (2). pp. 443-455. ISSN 0022-1082. https://resolver.caltech.edu/CaltechAUTHORS:20190507-082705503
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Abstract
Empirical papers on option pricing have uncovered systematic differences between market prices and values produced by the Black‐Scholes European formula. Such “biases” have been found related to the exercise price, the time to maturity, and the variance. We argue here that the American option variant of the Black‐Scholes formula has the potential to explain the first two biases and may partly explain the third. It can also be used to understand the empirical finding that the striking price bias reverses itself in different sample periods. The expected form of the striking price bias is explained in detail and is shown to be closely related to past empirical findings.
| Item Type: | Article | |||||||||
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| Additional Information: | © 1984 the American Finance Association. The authors are grateful for comments from David Emanuel, Dan Galai, Herbert Johnson, James MacBeth, and Mark Rubinstein. We thank the Institute for Quantitative Research in Finance for supporting this research. | |||||||||
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| Issue or Number: | 2 | |||||||||
| Record Number: | CaltechAUTHORS:20190507-082705503 | |||||||||
| Persistent URL: | https://resolver.caltech.edu/CaltechAUTHORS:20190507-082705503 | |||||||||
| Official Citation: | GESKE, R. and ROLL, R. (1984), On Valuing American Call Options with the Black‐Scholes European Formula. The Journal of Finance, 39: 443-455. doi:10.1111/j.1540-6261.1984.tb02319.x | |||||||||
| Usage Policy: | No commercial reproduction, distribution, display or performance rights in this work are provided. | |||||||||
| ID Code: | 95280 | |||||||||
| Collection: | CaltechAUTHORS | |||||||||
| Deposited By: | Tony Diaz | |||||||||
| Deposited On: | 07 May 2019 16:07 | |||||||||
| Last Modified: | 03 Oct 2019 21:11 |
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