Stochastic Dominance Option Pricing An Alternative Approach to Optio
This book illustrates the application of the economic concept of stochastic dominance to option markets and presents an alternative option pricing paradigm to the prevailing no arbitrage simultaneous equilibrium in the frictionless underlying and option m
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Stochastic Dominance Option Pricing An Alternative Approach to Option Market Research
Stochastic Dominance Option Pricing
Stylianos Perrakis
Stochastic Dominance Option Pricing An Alternative Approach to Option Market Research
Stylianos Perrakis Financial Derivatives, John Molson School of Business Concordia University Montreal, QC, Canada
ISBN 978-3-030-11589-0 ISBN 978-3-030-11590-6 (eBook) https://doi.org/10.1007/978-3-030-11590-6 Library of Congress Control Number: 2019932113 © The Editor(s) (if applicable) and The Author(s) 2019 This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made. The publisher remains neutral with regard to jurisdictional claims in published maps and institutional affiliations. This Palgrave Macmillan imprint is published by the registered company Springer Nature Switzerland AG The registered company address is: Gewerbestrasse 11, 6330 Cham, Switzerland
To Phyllis Sternberg Perrakis (July 1941–March 2018), literary scholar, editor, teacher, but also lover, wife, mother and grandmother. She encouraged me to write this book but was not there when it was finished.
Foreword
Stylianos Perrakis is a distinguished and prolific economist with broad interests in industrial organization, labor economics, policy, regulation, and, above all, stochastic dominance, financial engineering, transaction costs, and derivatives pricing. Perrakis is one of the pioneers in the systematic exploration of the fundamental concept of stochastic dominance as applied to the pricing of options and has brought it to the forefront of economic inquiry with important theoretical and empirical contributions. Perrakis is eminently qualified to present a systematic development of the theory of stochastic dominance and bring in one volume its theoretical and empirical applications to the pricing of options. Second-order stochastic dominance describes the shared preferences of all risk-averse investors, irrespective of their particular utility functions a
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