Constant elasticity of variance option pricing model: Integration and detailed derivation

Ying Lin Hsu, T. L. Lin, Cheng Few Lee

Research output: Chapter in Book/Report/Conference proceedingChapter


In this paper, we review the renowned constant elasticity of variance (CEV) option pricing model and give the detailed derivations. There are two purposes of this chapter. First, we show the details of the formulae needed in deriving the option pricing and bridge the gaps in deriving the necessary formulae for the model. Second, we use a result by Feller to obtain the transition probability density function of the stock price at time T given its price at time t. In addition, some computational considerations are given for the facilitation of computing the CEV option pricing formula.

Original languageEnglish (US)
Title of host publicationHandbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning (In 4 Volumes)
PublisherWorld Scientific Publishing Co.
Number of pages19
ISBN (Electronic)9789811202391
ISBN (Print)9789811202384
StatePublished - Jan 1 2020

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)


  • Constant elasticity of variance model
  • Noncentral chi-square distribution
  • Option pricing


Dive into the research topics of 'Constant elasticity of variance option pricing model: Integration and detailed derivation'. Together they form a unique fingerprint.

Cite this