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

What is pest analysis? , The PEST analysis is a structure that strategy adv...

The PEST analysis is a structure that strategy advisors utilize to examine the external macro-environment in which a firm works. PEST is an acronym for the subsequent factors

Design a performance evaluation report, The purchasing department of Bradle...

The purchasing department of Bradley Inc. is responsible for companywide purchasing. Its total costs are assigned to each division based on the number of purchase orders the purcha

Describe the classes of the recreation opportunity spectrum, The Recreation...

The Recreation Opportunity Spectrum (ROS) provides a framework which is useful in planning and providing environmentally sustainable outdoor recreation activities. a) Describe t

Illustrate the main roles of communication, Illustrate the main roles of co...

Illustrate the main roles of communication At a fundamental level, communication can assume one of four main roles: 1.  It can inform and make potential customers aware of a

What are the types of sales promotion strategies, What are the types of sal...

What are the types of sales promotion strategies? Sales Promotion Strategies: There are three kinds of sales promotion strategies as illustrated here: • Push, • Pul

Illustrate about the nature of the company, Illustrate about the Nature of ...

Illustrate about the Nature of the Company A firm having enough financial resources can afford to its own a distribution force and retail outlet, both. However most business fi

What marketing strategies, What marketing strategies are appropriate at eac...

What marketing strategies are appropriate at each stage of the product life cycle? How can a company build and mange its product mix and product lines.

Discuss the implications of behavioural changes, Mauritius is an open econo...

Mauritius is an open economy. The recent global financial crisis, world climatic changes impacting on food prices, and the strong demand from the BRIC(Brazil, Russia, India, and Ch

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