Derivative Securities – Section 4 – Fall 2004
نویسنده
چکیده
Lognormal price dynamics and passage to the continuum limit. After a brief recap of our pricing formula, this section introduces the lognormal model of stock price dynamics, and explains how it can be approximated using binomial trees. Then we use these binomial trees to price contingent claims. The Black-Scholes analysis is obtained in the limit δt → 0. As usual, Baxter–Rennie captures the central ideas concisely yet completely (Section 2.4) while Jarrow–Turnbull has a more liesurely treatment (Chapter 4, supplemented by Section 5.5). Hull has a lot of information about the lognormal model scattered through Chapters 10 and 11.
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Lognormal price dynamics and passage to the continuum limit. After a brief recap of our pricing formula, this section introduces the lognormal model of stock price dynamics, and explains how it can be approximated using binomial trees. Then we use these binomial trees to price contingent claims. The Black-Scholes analysis is obtained in the limit δt→ 0. As usual, Baxter–Rennie captures the cent...
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