When Does Extra Risk Strictly Increase an Option's Value?

A-Tier
Journal: The Review of Financial Studies
Year: 2007
Volume: 20
Issue: 5
Pages: 1647-1667

Score contribution per author:

4.022 = (α=2.01 / 1 authors) × 2.0x A-tier

α: calibrated so average coauthorship-adjusted count equals average raw count

Abstract

It is well known that risk increases the value of options. This article makes that precise in a new way. The conventional theorem says that the value of an option does not fall if the underlying asset becomes riskier in the conventional sense of the mean-preserving spread. This article uses two new definitions of 'riskier' to show that the value of an option strictly increases (i) if the underlying asset becomes 'pointwise riskier,' and (ii) only if the underlying asset becomes 'extremum riskier.' , Oxford University Press.

Technical Details

RePEc Handle
repec:oup:rfinst:v:20:y:2007:i:5:p:1647-1667
Journal Field
Finance
Author Count
1
Added to Database
2026-01-29