The Pricing of Futures and Options Contracts on the Value Line Index
1986; Wiley; Volume: 41; Issue: 4 Linguagem: Inglês
10.2307/2328232
ISSN1540-6261
Autores Tópico(s)Financial Markets and Investment Strategies
ResumoThe Journal of FinanceVolume 41, Issue 4 p. 843-855 Article The Pricing of Futures and Options Contracts on the Value Line Index T. HANAN EYTAN, T. HANAN EYTANSearch for more papers by this authorGIORA HARPAZ, GIORA HARPAZBoth authors from Department of Economics and Finance, Baruch College-The City University of New York. We wish to thank an anonymous reviewer for comments on an earlier draft of this paper. The authors are, of course, responsible for all the remaining errors.Search for more papers by this author T. HANAN EYTAN, T. HANAN EYTANSearch for more papers by this authorGIORA HARPAZ, GIORA HARPAZBoth authors from Department of Economics and Finance, Baruch College-The City University of New York. We wish to thank an anonymous reviewer for comments on an earlier draft of this paper. The authors are, of course, responsible for all the remaining errors.Search for more papers by this author First published: September 1986 https://doi.org/10.1111/j.1540-6261.1986.tb04552.xCitations: 14 Read the full textAboutPDF ToolsRequest permissionExport citationAdd to favoritesTrack citation ShareShare Give accessShare full text accessShare full-text accessPlease review our Terms and Conditions of Use and check box below to share full-text version of article.I have read and accept the Wiley Online Library Terms and Conditions of UseShareable LinkUse the link below to share a full-text version of this article with your friends and colleagues. Learn more.Copy URL ABSTRACT This paper considers the problems peculiar to the Value Line Index, because of its use of geometric averaging, as regards the pricing of options and futures on that index. The Value Line Composite Index (VLCI) is an equally weighted geometric average index of nearly 1700 stocks. The VLCI futures market has existed since 1982 while the VLCI options market was established in 1985. This paper provides valuation formulas and analyzes the economic properties of these contracts. Because of the geometric averaging in the VLCI, its contingent claims have special properties. For example, the futures price may fall short of the spot price and the value of a VLCI call option may decline when the volatility of the index is increased. VLCI futures are shown to provide a direct means for duplicating an equally weighted portfolio of the underlying stocks. REFERENCES 1F. Black."The Pricing of Commodity Contracts."Journal of Financial Economics 3 (March 1976), 167– 79. 2F. Black andM. Scholes."The Pricing of Options and Corporate Liabilities."Journal of Political Economy 81 (May 1973), 637– 54. 3G. M. Constantinides."Capital Market Equilibrium with Personal Tax."Econometrica 51 (June 1983), 611– 56. 4B. Cornell andK. 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