Generalized Option Betas

Sven  Husmann; Neda  Todorova

doi:10.4236/jmf.2013.33035

Sven Husmann, Neda Todorova

Abstract: This paper extends the option betas presented by Cox and Rubinstein (1985) and Branger and Schlag (2007). In particular, we show how the beta of the underlying asset affects both an option’s covariance beta and its asset pricing beta. In contrast to Branger and Schlag (2007), the generalized option betas coincide if the options are evaluated according to the CAPM option pricing model of Husmann and Todorova (2011). The option betas are presented in terms of Black-Scholes option prices and are therefore easy to use in practice.

Keywords: Option Pricing; Beta; Capital Asset Pricing Model

Cite this paper: S. Husmann and N. Todorova, "Generalized Option Betas," Journal of Mathematical Finance, Vol. 3 No. 3, 2013, pp. 347-356. doi: 10.4236/jmf.2013.33035.

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