Abstract
This paper studies the valuation problem of European call options when the presence of distressed selling may lead to further endogenous volatility and correlation between the stock issuer's asset value and the price of the stock underlying the option, and hence influence the option price. A change of numeraire technique, based on Girsanov Theorem, is applied to derive the analytical pricing formula for the European call option when the price of underlying stock is subject to price pressure triggered by the stock issuer's own distressed selling. Numerical experiments are also provided to study the impacts of distressed selling on the European call option prices.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callMore From: Journal of Industrial & Management Optimization
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
