A theory for Fluctuations in Stock Prices and Valuation of their Options

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dc.creatorGunaratne, Gemunu H.
dc.creatorMcCauley, Joseph L.
dc.date2002-09-19
dc.date.accessioned2026-07-07T12:10:59Z
dc.date.available2026-07-07T12:10:59Z
dc.descriptionA new theory for pricing options of a stock is presented. It is based on the assumption that while successive variations in return are uncorrelated, the frequency with which a stock is traded depends on the value of the return. The solution to the Fokker-Planck equation is shown to be an asymmetric exponential distribution, similar to those observed in intra-day currency markets. The "volatility smile," used by traders to correct the Black-Scholes pricing is shown to provide an alternative mechanism to implement the new options pricing formulae derived from our theory.
dc.description4 pages, 4 figures
dc.identifierhttps://arxiv.org/abs/cond-mat/0209475
dc.identifierhttp://arxiv.org/abs/cond-mat/0209475
dc.identifier.urihttp://salesiana.dossiersoluciones.com/handle/123456789/210091
dc.subjectStatistical Mechanics
dc.subjectPricing of Securities
dc.titleA theory for Fluctuations in Stock Prices and Valuation of their Options
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