Is it possible to imply a required rate of return on an option from a required rate of return on the underlying?
For example, given a known cost of equity, can you calculate the required rate of return on a call option over that equity given a known strike price?
I wondered whether it would make sense to value the call option using Monte Carlo model under a risk neutral framework where the drift term is the risk free rate, and then use a Monte Carlo model under a real world framework where the drift constant is set to the cost of equity. Under the risk neutral framework the simulated proceeds are discounted by the risk free rate and the mean is taken, giving a value V. Under the real world framework you would calculate the discount rate required for the average NPV to also equal V. This discount rate would be the rate of return required on the option.
Does this make sense? Is there a more eloquent way of doing this?
It would be great is someone could point me in the direction of some literature where options are valued under a non-risk neutral/real world framework, which isn't too inaccessible.