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

Test Marketing, Explain the various approaches that are followed by FMCG co...

Explain the various approaches that are followed by FMCG companies in test marketing

Segmenting industrial markets, Segmenting industrial markets: 1.      ...

Segmenting industrial markets: 1.       Size of the customer: this has been one of the traditional methods of segmenting industrial market. Bases on the size and the purchase

Give a documentary, (a) Show one movie genre of particular interest to you ...

(a) Show one movie genre of particular interest to you and give examples from relevant films to illustrate the conventions used. To what extent do you think that genre conventions

Lesson 3.5 skills practice, the equation s=p shows the relationship between...

the equation s=p shows the relationship between the amount george saves from each paycheck george saves and determines how much of a 128 dollar paycheck george save

Illustrate the overview of trade advertisement, Illustrate the overview of ...

Illustrate the overview of Trade Advertisement? Trade Advertisement: • Advertisement addressed to wholesalers, • Advertisement addressed to distributors, agents, •

What is meant by knowledge management strategy, Question 1: (a) What is...

Question 1: (a) What is meant by knowledge management strategy? (b) Define the RICE model and explain how you would apply it in designing a knowledge management strategy for

State the term- message content, State the term- Message content In ...

State the term- Message content In general, there is high-involvement in many business-to- business purchase decisions hence communications tend to be much more rational and

Explain target marketing strategy or product levels, 1. Discuss Lipton's b...

1. Discuss Lipton's bases for segmenting Lipton's consumer markets. 2. Examine Lipton's target marketing strategy from the product offering seen above. 3. Explain and determine t

What are main assets of brand equity, What are main assets of brand equity?...

What are main assets of brand equity? The main assets of brand equity are as given below: a. Brand Awareness: It refers to the strength of a brands presence within the min

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