Abstract
Recall from Chapter 5 the following application of the general no-arbitrage theory. If interest rate r is constant and a stock price process follows a log-normal process, then the theoretical value at time t of a European call with maturity T = Nh can be obtained from the Black-Scholes (BS) formula as follows;
The corresponding value of a European put in (1.2) is given via the Put-Call Parity in Chapter 2. Since these formulas do not depend explicitly on n, N and h, they are also valid in the case of continuous time.
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© 2003 Springer Science+Business Media New York
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Kariya, T., Liu, R.Y. (2003). Stock Option Theory and Its Applications. In: Asset Pricing. Springer, Boston, MA. https://doi.org/10.1007/978-1-4419-9230-7_8
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DOI: https://doi.org/10.1007/978-1-4419-9230-7_8
Publisher Name: Springer, Boston, MA
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