Please use this identifier to cite or link to this item:
http://hdl.handle.net/2445/119285
Title: | Black-Scholes option pricing within Itô and Stratonovich conventions |
Author: | Perelló, Josep, 1974- Porrà i Rovira, Josep Maria Montero Torralbo, Miquel Masoliver, Jaume, 1951- |
Keywords: | Matemàtica financera Processos estocàstics Business mathematics Stochastic processes |
Issue Date: | 1-Apr-2000 |
Publisher: | Elsevier B.V. |
Abstract: | Options are financial instruments designed to protect investors from the stock market randomness. In 1973, Fisher Black, Myron Scholes and Robert Merton proposed a very popular option pricing method using stochastic differential equations within the Itô interpretation. Herein, we derive the Black-Scholes equation for the option price using the Stratonovich calculus along with a comprehensive review, aimed to physicists, of the classical option pricing method based on the Itô calculus. We show, as can be expected, that the Black-Scholes equation is independent of the interpretation chosen. We nonetheless point out the many subtleties underlying Black-Scholes option pricing method. |
Note: | Versió postprint del document publicat a: https://doi.org/10.1016/S0378-4371(99)00612-3 |
It is part of: | Physica A, 2000, vol. 278, num. 1-2, p. 260-274 |
URI: | http://hdl.handle.net/2445/119285 |
Related resource: | https://doi.org/10.1016/S0378-4371(99)00612-3 |
ISSN: | 0378-4371 |
Appears in Collections: | Articles publicats en revistes (Física de la Matèria Condensada) |
Files in This Item:
File | Description | Size | Format | |
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152722.pdf | 134.63 kB | Adobe PDF | View/Open |
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