Abstract
The evolution of uncertainty over time can be conceptualized and modelled as a mathematical expression, known as a stochastic process, which describes the evolution of a random variable over time. Models of asset price behaviour for pricing derivatives are formulated in a continuous time framework by assuming a stochastic differential equation (SDE) describing the stochastic process followed by the asset price. The most well-known assumption made about asset price behaviour, which was made by Black and Scholes (1973) is geometric Brownian motion (GBM).
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Black, F. and Scholes, M. The pricing options and corporate liabilities, Journal of Political Economy, 81: 637–59, 1973.
Clewlow, L. and Strickland, C. Energy Derivatives, Pricing and Risk Management, Lacima, 2000.
Clewlow, L. and Strickland, C. Implementing Derivative Models, Wiley, 1998.
Cox, J.S., Ross, S. and Rubinstein, M. Option pricing: a simplified approach, Journal of Financial Economics, 7 (September): 229–63, 1979.
Hull, J.C. Options, Futures and Other Derivatives, Prentice Hall, 2000.
Copyright information
© 2009 Jamie Rogers
About this chapter
Cite this chapter
Rogers, J. (2009). Option Pricing Methods. In: Strategy, Value and Risk. Palgrave Macmillan Finance and Capital Markets Series. Palgrave Macmillan, London. https://doi.org/10.1057/9780230353930_12
Download citation
DOI: https://doi.org/10.1057/9780230353930_12
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-349-36707-8
Online ISBN: 978-0-230-35393-0
eBook Packages: Palgrave Economics & Finance CollectionEconomics and Finance (R0)