Abstract
As in the previous chapters, we consider a market model consisting in two assets: one non-risky (bond), the other risky (stock). While before we focused on discrete-time market models, here we introduce the so-called Black-Scholes model : a well-known example of continuous-time market model.
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Notes
- 1.
1 A spread is a trading strategy composed by two or more options of the same kind, that is all options are either European Calls or European Puts written on the same underlying.
Among the different spreads, the so-called “bear spread” is used when a decrease in the stock price is expected. For Call options, a bear spread is obtained by selling the Call option with lower strike and by buying the Call with higher strike.
- 2.
2 The so-called “butterfly spread” is used when we expect that the stock price remains more or less stable. A butterfly spread for Call options can be obtained by buying one Call option with lower strike, buying one Call option with higher strike and selling two Call options with intermediate strike.
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Gianin, E.R., Sgarra, C. (2013). Black-Scholes Model for Option Pricing and Hedging Strategies. In: Mathematical Finance: Theory Review and Exercises. UNITEXT(), vol 70. Springer, Cham. https://doi.org/10.1007/978-3-319-01357-2_7
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DOI: https://doi.org/10.1007/978-3-319-01357-2_7
Publisher Name: Springer, Cham
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