The Valuation of Options for Alternative Stochastic Processes

By Stephen RossJohn Cox
1975| Working Paper No. 277

This paper examines the structure of option valuation problems and develops a new technique for their solution. It also introduces several jump and diffusion processes which have not been used in previous models. The technique is applied to these processes to find explicit option valuation formulas, and solutions to some previously unsolved problems involving the pricing of securities with payouts and potential bankruptcy.