Risk Premium Impact in the Perturbative Black Scholes Model

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dc.creatorRegis, Luca
dc.creatorScotti, Simone
dc.date2008-06-02
dc.date.accessioned2026-07-07T12:10:34Z
dc.date.available2026-07-07T12:10:34Z
dc.descriptionWe study the risk premium impact in the Perturbative Black Scholes model. The Perturbative Black Scholes model, developed by Scotti, is a subjective volatility model based on the classical Black Scholes one, where the volatility used by the trader is an estimation of the market one and contains measurement errors. In this article we analyze the correction to the pricing formulas due to the presence of an underlying drift different from the risk free return. We prove that, under some hypothesis on the parameters, if the asset price is a sub-martingale under historical probability, then the implied volatility presents a skewed structure, and the position of the minimum depends on the risk premium $λ$.
dc.description20 pages, 11 figures
dc.identifierhttps://arxiv.org/abs/0806.0307
dc.identifierhttp://arxiv.org/abs/0806.0307
dc.identifier.urihttp://salesiana.dossiersoluciones.com/handle/123456789/209968
dc.subjectPricing of Securities
dc.subjectProbability
dc.subject60H30; 91B16; 91B70
dc.titleRisk Premium Impact in the Perturbative Black Scholes Model
dc.typetext

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