Abstract
Abstract This paper derives a call option valuation equation assuming discrete trading in securities markets where the underlying asset and market returns are bivariate lognormally distributed and investors have increasing, concave utility functions exhibiting skewness preference. Since the valuation does not require the continouus time riskfree hedging of Black and Scholes, nor the discrete time riskfree hedging of Cox, Ross and Rubinstein, market effects are introduced into the option valuation relation. The new option valuation seems to correct for the systematic mispricing of well-in and well-out of the money options by the Black and Scholes option pricing formula.
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