Option Pricing Model Under Incomplete Information

The traditional option pricing model is assumed under the complete information . But in recent decades the financial economists have found some unexplainable phenomena. , such as "inertia effect", "reverse effect"," value effect", and so on. These phenomena have bring forward severe test to the efficient market theory and the traditional asset pricing theory. In this paper, we relax the assumption of the effect of the market and research the options pricing theory under incomplete information.This paper is organized as follows:First, when the information of underlying asset price is incomplete, that is to say, the price of underlying asset doesn't reflect the mark sufficiently, timely., we consider two conditions: First, when all investors don't extract the information initiative but accept the information about market passively, we use B-S model. Second, because information plays a crucial role in the investment decision-making, investors will not accept the information passively but search for information in incomplete information market initiative. However, since collecting information cost money, we consider the option pricing model containing information cost.Second, the interest also plays very important role in option pricing. When interest changes, the option pricing will be affected directly. In this part, we consider when the information about market is incomplete and the information of changes of the interest rate is complete, we search information related to the changes of interest ,and use bayesian theory to estimate the change of interest. Then we establish the option pricing model under incomplete information .what's more, we analyses the influence of the parameters in the option model.Third, in this part, we consider the standard credit default swap pricing model under incomplete information. Because of incomplete information of market, company's default probability is difficult to predict. Companies selling and buying CDS collect information related to the issuance of corporate bonds to estimate the probability of default. In this part we establish standard credit default swap option model under incomplete information.