BAYESIAN STATISTICAL EXPERT OPINION IN OPTION PRICING ATHANASSIOS KATSIS Department of Social and Educational Policy, University of Peloponnese, Damaskinou & Kolokotroni Street, 20100, Korinthos, Greece email: katsis@uop.gr SPIROS MARTZOUKOS Department of Public and Business Administration, University of Cyprus, 75 Kallipoleos Str., P.O. Box 20537, CY 1678, Nicosia, Cyprus ATHANASSIOS YANNACOPOULOS Department of Statistics, Athens University of the Economics and Business, 76 Patission Str, 10434, Athens, Greece Abstract In this paper we propose a model for the implementation of statistical expert opinion in option pricing in order to elicit estimates of unobserved volatilities of the underlying assets. We suggest two different pricing approaches based on the Black-Scholes model (Black and Scholes (1973)). The results of the paper shed light on the effect of uncertainty and choice of volatility probability distribution on European option prices. The proposed statistical methodology follows the Bayesian point of view. Key Words and Phrases: Statistical expert opinion; Volatility; Options; Parameter estimation; Bayesian inference AMS 2000 Subject Classifications: 62F15; 91B24; 91B28 1