Black-scholes-merton, Marketing Management

Assignment Help:

Black-Scholes-Merton

This section illustrates the Black-Scholes (BS) model [BS73] and the pricing form under it by using a European call option that based on the assumption of deterministic interest rates in the market for a particular stock. Such an assumption the stochastic interest rates have a stronger influence on the pricing option for a long-maturity, however, deterministic feature of interest rates is harmless in most situation.

Suppose we are studying this on a complete filtered probability space (Ω, f, F = (ft)t≥0,P), consists of a probability space  (Ω, f, P)and a filtration F = (ft)t≥0contained in f.

Assume that the asset-price St follows a geometric Brownian motion GBM if it satisfies the following stochastic differential equation (SDE):

dSt =rStdt + σSt dWt1

where r is the riskless rate, the standard deviation parameter σ determines its volatility as well Wt1 is a standard Brownian motion. The BS model requires that both the riskless rate and the volatility of the asset-price remain constant over the period of analysis. Moreover, the asset-price considers being a right-continuous with left limit. In addition, there is no way to make a riskless profit (i.e., There is no arbitrage opportunity) as well as the transaction does not incur any fees or costs in the market. However, it has been observed that riskless rate and volatility should be stochastic [HW93] and [Hes93] respectively.


Related Discussions:- Black-scholes-merton

Academic writer, i would like to join your company as academic writer. how ...

i would like to join your company as academic writer. how do i go about it?

Statistics, a survey is classified as successful if usable data is obtained...

a survey is classified as successful if usable data is obtained from it. Let Ai denote the event that at most i repetitions of the survey are required for success. Use set notation

ENVIROMENTAL FACTORS, WHAT ENVIROMENTAL FACTORS AFFECT SONYS PERFORMANCE

WHAT ENVIROMENTAL FACTORS AFFECT SONYS PERFORMANCE

Implement the product development strategy, Question: a. With referenc...

Question: a. With reference to appropriate theory, explain how a product development strategy could be implemented to expand sales within a Fast-Moving Consumer Goods (FMCG) o

Case study, #Should video game companies continue to alter their products t...

#Should video game companies continue to alter their products to include other functions such as email? Shouldvideo_game_companies_continue_to_alter_their_products_to_include_othe

Upward strech, what are the advantages of upward strech

what are the advantages of upward strech

Explain about the consumer movement in marketing activities, Explain about ...

Explain about the consumer movement in marketing activities. Consumer movement: Avarious collection of independent peoples, groups and organizations seeking to defend the

What are the disadvantages of joint ventures, What are the disadvantages of...

What are the disadvantages of joint ventures? Joint ventures also have disadvantages, which are given below: • Partners do not consist of full control of management • May

Determine the employee role of dominance, Question 1: Determine the Emp...

Question 1: Determine the Employee Role of Dominance Detailed explanation on ‘Employee Role in Service Designing' Question 2: What is service differentiation?

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd