7. Conclusions

This concluding chapter revisits some of the themes noted in the Preface in a more general context, positioning them into the realm of the entire body of knowledge known today as Finance, whose origins are in the seminal 1952 article of Harry Markowitz. It focuses on the assumptions underlying the dominant no arbitrage-equilibrium model of asset pricing in the frictionless economy when applied to the underlying asset and corresponding option markets. It argues that many of these assumptions have persisted for many years in spite of their lack of realism and their model’s inability to accommodate observed empirical facts. Last, it notes that stochastic dominance is a more general approach to option pricing that is based on fewer assumptions and can resolve several of these empirical contradictions.