How Close Are the Option Pricing Formulas of Bachelier and Black-merton-scholes?
نویسندگان
چکیده
We compare the option pricing formulas of Louis Bachelier and Black-Merton-Scholes and observe – theoretically and by typical data – that the prices coincide very well. We illustrate Louis Bachelier’s efforts to obtain applicable formulas for option pricing in pre-computer time. Furthermore we explain – by simple methods from chaos expansion – why Bachelier’s model yields good short-time approximations of prices and volatilities.
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