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

Define marketing mix according to philip kotler, Define marketing mix accor...

Define marketing mix according to Philip Kotler According to Philip Kotler "Marketing Mix is set of controllable variables that firm can use to influence buyer's response".  C

Consumer buying behaviour, Consumer Buying Behaviour Markets (and thos...

Consumer Buying Behaviour Markets (and those which they serve) must be understood before marketing strategies may be developed. The consumer market purchase services and goods

Marketing Management Philosophies, Characteristics of Sellings oriented con...

Characteristics of Sellings oriented concept of marketing, Marketing Management

Market strategy, Market strategy: Meaning & definition: marketing str...

Market strategy: Meaning & definition: marketing strategy of a firm is the complete and unbeatable plan or instrument designed specifically for attaining the marketing object

Frederick herzberg''s dual factor, Explain the relationship between Frederi...

Explain the relationship between Frederick Herzberg's dual (two) factor motivation theory and job enrichment. Hygiene factors contain pay, status, working conditions, rules and

Market segmentation, the ways in which the concept of segmentation, targeti...

the ways in which the concept of segmentation, targeting and positioning would be applied in improving profitability

International Marketing, David Ricardo''s theory of comparative advantage i...

David Ricardo''s theory of comparative advantage is an improvement over Adam Smith''s theory of absolute advantage.

Henry Assael Model, Explain Henry Assael Model of buying decision behaviour...

Explain Henry Assael Model of buying decision behaviour along with the diagram”.

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