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A Put Option Paradox
Published online by Cambridge University Press: 06 April 2009
Abstract
What happens to the price of a put in a period during which the stock price stays constant? The hedging strategy implicit in the Black-Scholes model would seem to imply that the put goes up in value. Pure arbitrage arguments imply the opposite result. This paper resolves the paradox and uses it to explore the restrictions inherent in the diffusion processes assumed for all option pricing models.
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- Research Article
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- Copyright © School of Business Administration, University of Washington 1988
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