Requiem for Option Value

Abstract

As Freeman (1984) accurately notes, a lot of ink has been spilled over the concept of option value during the last two decades. Graham, in his seminal 1981 article, outlined the specific conditions under which option price is and, more significantly, is not an appropriate and relevant measure of value under demand uncertainty. While Graham's article demonstrates that option value is relevant only under restrictive assumptions regarding preferences and the nature of the uncertainty, both the tone and contents of recent articles on the

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