Can Bailout Improve the Economic Welfare? A Structural Derivation of the Option Price ()
Affiliation(s)
ABSTRACT
We developed a game-theoretic approach concerning the option pricing validity and tractability of which is ascertained by deriving the Black-Scholes formula. We also applied this approach to the welfare implications of the bailout policy. It is found that such a policy always worsens the economic welfare. This is because of the moral hazardous behavior of the buyer owing to the limited liability which is emphasized, for example, by Arrow [1] and Stiglitz and Weiss [2].
KEYWORDS
Share and Cite:
Copyright © 2024 by authors and Scientific Research Publishing Inc.
This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.