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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:
It is part of: Physica A, 2000, vol. 278, num. 1-2, p. 260-274
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ISSN: 0378-4371
Appears in Collections:Articles publicats en revistes (Física de la Matèria Condensada)

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