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Further Results on the Constant Elasticity of Variance Call Option Pricing Model

Published online by Cambridge University Press:  06 April 2009

David C. Emanuel  and
James D. MacBeth
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Extract

The Black-Scholes [4] call option model is a member of the class of constant elasticity of variance call option models proposed by Cox [6]. While the Black-Scholes model assumes that the volatility or instantaneous variance of return is constant through time, the other members of the class allow the volatility to change with the stock price. This property is of interest because empirical evidence suggests that returns to common stock are heteroscedastic and also that volatilities, implied from the Black-Scholes model and market prices of call options, are not constant.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 17 , Issue 4 , November 1982 , pp. 533 - 554
Copyright
Copyright © School of Business Administration, University of Washington 1982

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References

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