Description: A European call option pricing model similar to the Black-Scholes equation [1] is derived. Like the Black-Scholes equation, the model is based upon an assumption of a lognormal distribution of the price of a risky, non-dividend-paying security at a given point in the future. However, unlike Black-Scholes, the market's risk preference is recognized through a parameter that permits refinement of the model to agree either with experience or with future advances in the underlying theory.

Description: Discussion of significant anomalies in option pricing due to the independent identically distributed assumption of the Black Scholes formula.