When constructing a theoretical model for pricing a derivative, if the theoretical model is rejected by historical

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When constructing a theoretical model for pricing a derivative, if the theoretical model is rejected by historical data, can one still use the model to price derivatives? Explain your answer using the BSM as an example.

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An Introduction to Derivative Securities Financial Markets and Risk Management

ISBN: 978-0393913071

1st edition

Authors: Robert A. Jarrow, Arkadev Chatterjee

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Question Posted: Dec 02, 2015 03:54 AM

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When constructing a theoretical model for pricing a derivative, if the theoretical model is rejected by historical

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Yes calibration will transform the theoretical model into a statistical model The ...View the full answer

An Introduction to Derivative Securities Financial Markets and Risk Management

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