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Abstract

In this paper we show that in the lognormal discrete-time stochastic volatility model with predictable conditional expected returns, the conditional expected value of the discounted payoff of a European call option is infinite. Our empirical illustration shows that the characteristics of the predictive distributions of the discounted payoffs, obtained using Monte Carlo methods, do not indicate directly that the expected discounted payoffs are infinite.

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Authors and Affiliations

Anna Pajor

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