Stochastic differential equations and the Black - Scholes PDE
نویسنده
چکیده
Stochastic differential equations and the Black-Scholes PDE. We derived the BlackScholes formula by using arbitrage (risk-neutral) valuation in a discrete-time, binomial tree setting, then passing to a continuum limit. This section explores an alternative, continuoustime approach via the Ito calculus and the Black-Scholes differential equation. This material is very standard; I like Wilmott-Howison-Dewynne but Hull and Jarrow-Turnbull also have very good treatments (each emphasizing a different viewpoint).
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