It’s a well known empirical fact that actual option prices show persistent and systematic deviations from Black-Scholes option values. While a substantial number of enhancements have been proposed in the literature, these approaches typically leave investor’s preferences towards risk unmodified. Recently, empirical studies using option prices find support for non-concave utility functions propo...

This paper analyzes corporate bond valuation and optimal call and default rules when interest rates and firm value are stochastic. It then uses the results to explain the dynamics of hedging. Bankruptcy rules are important determinants of corporate bond sensitivity to interest rates and firm value. Although endogenous and exogenous bankruptcy models can be calibrated to produce the same prices,...

The Black–Scholes Option pricing model (OPM) developed in 1973 has always been taken as the cornerstone of option pricing model. The generic applications of such a model are always restricted by its nature of not being suitable for fuzzy environment since the decision-making problems occurring in the area of option pricing are always with a feature of uncertainty. When an investor faces an opti...

This paper aims to develop a new economic assessment (EA) method using the option to expand for Advanced Process Control (APC) and Real Time Optimization (RTO). The new EA criteria for investment decision for APC and RTO employ net present value of APC and call option of RTO. Calculation of call option adapts arithmetic measurement method to compute annualized volatility. The new EA applies sce...

Nonlinear Black–Scholes equations have been increasingly attracting interest over the last two decades, since they provide more accurate values by taking into account more realistic assumptions, such as transaction costs, risks from an unprotected portfolio, large investor’s preferences or illiquid markets, which may have an impact on the stock price, the volatility, the drift and the option pr...