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

Propose a one-year marketing communication plan, Question 1: Critically...

Question 1: Critically determine the different ways in which competitor advantage may be obtained by any firm of your choice. Question 2: You work as Marketing Communic

Assignmet, Give a success story of marketing a goods in which a supplier ha...

Give a success story of marketing a goods in which a supplier has been dependable.

Caselet, considering the concept of product life cycle, where would you put...

considering the concept of product life cycle, where would you put video games in their life cycle?

Methods of setting the promotion budget, QUESTION a) "Increasingly, com...

QUESTION a) "Increasingly, companies are using direct marketing to reach carefully targeted customers more efficiently and to build stronger, more personal, one-to-one relation

Coefficient of determination, Q . The following are two weekly forecasrs ma...

Q . The following are two weekly forecasrs made by two different methods for the number of gallons of gasoline in thousands, demanded at a local gasoline station. lAlso shown are a

What is the importance of teamwork, Question: Whether in the workplace ...

Question: Whether in the workplace or on the football field, or amongst members of a community and especially in the service industry, effective teamwork produce incredible res

Pricing, how cost structure influence in pricing a product?

how cost structure influence in pricing a product?

Show the economics benefits of outdoor recreation, Question 1: The exte...

Question 1: The extensive use of outdoor recreational attractions based in natural areas has resulted into increased negative environmental and social impacts. Using local e

Roles of peoples in the purchase decision procedure, What are the roles of ...

What are the roles of peoples who participating in the purchase decision procedure? The roles of peoples who participating in the purchase decision procedure is as follows:

Distinguish between recipe costing and menu costing, Question 1: (i) E...

Question 1: (i) Explain why the control system is an important aspect of the food and Beverage management of a hotel. (ii) Discuss the necessity and importance of docum

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