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

Marketing function of the physical supply, Function of the physical supply:...

Function of the physical supply: The second group of the marketing process is the physical supply. These are the functions that are related with creation of place and time u

Wording of hawkins best and coneef about consumer behaviour, What is the wo...

What is the wording of the Hawkins Best and Coneef about consumer behaviour? In words of the Hawkins Best and Coneef as, “The field of consumer behaviour is the learning of i

Exchange, Exchange, transactions, and relationships Marketing occurs w...

Exchange, transactions, and relationships Marketing occurs while people decide to satisfy wants and needs through exchange. Exchange is the act of getting a desired object fro

How customers become brand loyal, Question 1: Brand loyalty is the cust...

Question 1: Brand loyalty is the customer's conscious or unconscious decision, through intention or behaviour, to repurchase a brand continually. In today's highly competitive

Importance of the marketing planning:, Importance of the marketing planning...

Importance of the marketing planning: the Importance of the marketing planning is clear from the following 1.       To offset future uncertainties: future is always wrapped i

How can marketing decision support system, What decisions do companies face...

What decisions do companies face in designing a sales force? How can marketing decision support system help marketing manager towards making better decisions?

Why do businesses meet with failures, Question 1: If an organisation de...

Question 1: If an organisation decides to start trading internationally, besides exporting, it has various modes of entry. Critically explain and evaluate each mode of entry wi

Test marketing, what is test marketing?explain the various approaches that ...

what is test marketing?explain the various approaches that are followed by FMCG companies in test marketing.

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