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

Amazon.com, Whats next for Amazon.com? Is cloud computing the right directi...

Whats next for Amazon.com? Is cloud computing the right direction for the company? Where else can it grow?

Marketing environment, Marketing Environment In order to properly iden...

Marketing Environment In order to properly identify opportunities and monitor threats, the company ought to begin with a thoroughgoing understanding of the marketing environme

What is lead generation in personal selling process, What is lead generatio...

What is lead generation in personal selling process? Lead generation: Identification of prospects is initial step in personal selling process. Organization produces the l

What is penetration pricing, Penetration Pricing This term is refers to...

Penetration Pricing This term is refers to a pricing strategy that dictates that the price of an item being introduced into a market should be set as low as possible to develop

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

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

Explain about business marketing, Explain about Business Marketing. Whe...

Explain about Business Marketing. When customer is the focus of all activities marketer has not to search customer to seek response to his products. Customer group is decided f

Why does your subjects not have consumer behaviour, i need a literature rev...

i need a literature review written by you on a consumer behaviour . Please help I cannot send any email it says error

Support media used in advertisement, Q. Support Media used in advertisement...

Q. Support Media used in advertisement? Support Media: - Message is legible, brief written in bold letters attractive, eye-catching and it must depict the brand name. It has

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