ESG Financial Market with Informed Traders within the Bachelier–Black–Scholes–Merton Model

This study seeks to advance the theory of dynamic asset pricing by introducing asset valuation, adjusted by environmental, social and governance (ESG) ratings, within a unified Bachelier–Black–Scholes–Merton market model, and developing option valua tion in both continuous-time and discrete-time (binomial pricing tree) frameworks. An empirical study based on call option prices for assets selected from the Nasdaq-100 develops implied values for the main ESG parameter in the pricing model. For these stocks, option traders have in-the-money ESG valuations that are lower than the spot price. Within the discrete-time framework, we demonstrate how an informed trader can adopt a futures trading strategy to optimize an effective dividend stream.