The Bell Journal of Economics · 1976 · 1.7K citations · 0 references
BusinessEconomicsFinanceFinancial EconomicsFinancial MarketsPricing TheoryOption PricingOption Pricing ModelsOption ValuePricing Under UncertaintyRisk AversionStock OptionsBlack-scholes ModelBlack-scholes Valuation ModelOption Pricing TheoryOption Pricing Under UncertaintyOption Pricing ValuationOption-based ValuationRisk Averse ValuationsRisk-averse Pricing
A simple formula is developed for the valuation of uncertain income streams consistent with rational risk averse investor behavior and equilibrium in financial markets. Applying this formula to the pricing of an option as a function of its associated stock, the Black-Scholes formula is derived even though investors can only trade at discrete points in time.