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 do you meant by total customer satisfaction, Question 1: (a) What...

Question 1: (a) What do you meant by total customer satisfaction? (b) How will customer safisfaction be measured? (c) Explain the importance of customer value creation

Explain the nature and scope of advertising, Explain the Nature and Scope o...

Explain the Nature and Scope of Advertising. Nature and Scope of Advertising: • Paid form • Non-personal presentation and also Promotion. • Known sponsor • Anyo

Price, A negative reaction on the part of buyer to price change by your com...

A negative reaction on the part of buyer to price change by your company

Marketing Management, How are Indian customers visiting Shopper''s stop any...

How are Indian customers visiting Shopper''s stop any different from customers of developed western countries?

Should video game companies continue to alter their , Should video game com...

Should video game companies continue to alter their products to include other functions, such as e-mail?

Channel - management decisions, Channel - management decisions: after a co...

Channel - management decisions: after a company has chosen alternative, individual   intermediaries' must be selected trained, motivated, and evaluated. Channel arrangements must

Explain types of market segmentation, Question 1: (a) Using examples, d...

Question 1: (a) Using examples, differentiate between the terms "micro? marketing environment and "macro" marketing environment? (b) Moutinho (2000) argues that the PESTLE f

What is competition based pricing, What is Competition Based Pricing In...

What is Competition Based Pricing In case of products where market is highly competitive and there is negligible difference in quality of competing brands, price is generally f

How the personal characteristics of the buyer influence, Question 1: Co...

Question 1: Consider that you are the manager of front-line customer-service employees in a tourism/hospitality organisation. From this perspective, elaborate on the strategie

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