Unique Option Pricing Measure with Neither Dynamic Hedging Nor Complete Markets

  title={Unique Option Pricing Measure with Neither Dynamic Hedging Nor Complete Markets},
  author={Nassim Nicholas Taleb},
  journal={FEN: Other International Corporate Finance (Topic)},
  • N. Taleb
  • Published 1 March 2015
  • Economics
  • FEN: Other International Corporate Finance (Topic)
Proof that under simple assumptions, such as constraints of Put-Call Parity, the probability measure for the valuation of a European option has the mean derived from the forward price which can, but does not have to be the risk-neutral one, under any general probability distribution, bypassing the Black-Scholes-Merton dynamic hedging argument, and without the requirement of complete markets. We confirm that the heuristics used by traders for centuries are both more robust, more consistent, and… 
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