September 2017
Beginner to intermediate
784 pages
23h 56m
English
Content preview from Derivatives Markets and Analysis
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CHAPTER 11The Black‐Scholes Option Pricing Model
As we subdivide the expiration period in applying the BOPM, or equivalently make the length of each period smaller, the number of possible stock prices at expiration increases and the assumption of only two states in one period is more plausible. Thus, for the pricing of most options, the binomial model for large n is more realistic. As n becomes large, the BOPM becomes the equation for the Black‐Scholes (B‐S) OPM. Thus, for large n the equilibrium values of an option derived by the BOPM are approximately the same as those obtained by the OPM developed by Black and Scholes. In this chapter, we examine the B‐S OPM and it application.
The Black‐Scholes Call Model
Like the binomial, the B‐S model ...
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