Buyer's Option Price in the Prescence of Secondary Markets

[sirinath]

Hi All,

I am currently studying derivatives and trying to improve my
understanding on them. I have being thinking about the value of an
option. This has two sides of it as I see it: 1) the writer's
perspective and 2) buyers perspective.

Option pricing, what ever pricing formular used, takes into account
the probability adjusted cash out flow of writing an option on
expiration of exercising.

Since the option can be sold in the secondary market from the buyers
perspective he has the chance of altering the expected cash inflow buy
selling it. I have a feeling that this can be worked out by double
integrating the option pricing formula used across the distribution of
price over the life of the options. This expected value may be
different from the option price.

Any comments on this? If you can direct me to online literature on
similar thoughts I would be very happy.

Suminda Sirinath Salpitikorala Dharmasena

P.S. due to secondary markets the writer can also close his position
early by buying back the option - S.S.S.D.