Black-Scholes Options Pricing Model
Year: 2000 Volume: 50 Issue: 2 Pages: 78-98
Abstract: This paper deals with the most widespread model of options pricing, the Black-Scholes model. The model is derived in the usual way, by means of Ito?s lemma. The Black-Scholes partial differential equation is obtained under the assumption of geometric Brownian motion of the underlying stock. Several useful generalizations, including a brief overview of risk-neutral pricing, are discussed. The last section contains an empirical test of this model using daily data from the Chicago Board Options Exchange. The appendix gives a thumbnail sketch of the fundamental results of stochastic differential calculus.
JEL classification: G12
Keywords: Black-Scholes model, stochastic approach
RePEc: n/a
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