Sabtu, 27 Desember 2014

Derivation of the Black-Scholes-Merton option-pricing formula from a binomial tree


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Trading strategies involving options
Principal-protected notes
Trading an option and the underlying asset
Spreads
Combinations
Other payoffs
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Binomial trees
A one-step binomial model and a no-arbitrage argument
Risk-neutral valuation
Two-step binomial trees
A put example
American options
Delta
Matching volatility with u and d
The binomial tree formulas
Increasing the number of steps
Using DerivaGem
Options on other assets
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Derivation of the Black-Scholes-Merton option-pricing formula from a binomial tree
Wiener processes and ItO's lemma
The Markov property
Continuous-time stochastic processes
The process for a stock price
The parameters
Correlated processes
Ito's lemma
The lognormal property
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Derivation of Ito's lemma
The Black-Scholes-Merton model
Lognormal property of stock prices
The distribution of the rate of return
The expected return
Volatility
The idea underlying the Black-Scholes-Merton differential equation

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