Affiliation:
1. Citigroup Risk Architecture, 153 E 53rd St., NY 10022, USA
Abstract
In this article we examine the pricing of options when trading noise and uncertainty in the options markets invalidates the assumption that the price of the option depends solely on the price of the underlying security (or any set of underlying state variables). We show that the introduction of trading noise in the options market affects the call-put parity relationship, and can also contribute to generate implied volatility skews.
Publisher
World Scientific Pub Co Pte Lt
Subject
General Economics, Econometrics and Finance,Finance