Information and option pricings

@inproceedings{Guo2001InformationAO,
  title={Information and option pricings},
  author={Xin Guo},
  year={2001}
}
How can one relate stock fluctuations and information-based human activities? We present a model of an incomplete market by adjoi ning the Black-Scholes exponential Brownian motion model for stock fluctuations with a hidden Markov process, which represents the state of i nf rmation in the investors’ community. The drift and volatility paramet ers take different values depending on the state of this hidden Markov proce ss. Standard option pricing procedure under this model becomes problema tic… CONTINUE READING
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