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Introduction to option pricing in a securities market I. Binary models. Mathematics of finance, Part I
| Content Provider | Semantic Scholar |
|---|---|
| Author | Dzhaparidze, Kacha Zuijlen, M. C. A. Van |
| Copyright Year | 1996 |
| Abstract | A general mathematical model is studied for the nite binary securities market, where only a stock and a bond are traded. Basic notions such as self-nancing strategies and arbitrage opportunities are characterized. Moreover, completeness of the model is shown, hedging strategies are determined and general pricing formulas for contingent claims are derived. Several examples of binary price processes, such as the nonhomogeneous binomial model and moving average processes are included and option prices are calculated. The tools and the results are aimed at a limiting transition, to be carried out in the forthcoming parts of these papers, where the number of trading times tends to innnity and the mesh between the trading times tends to zero. In our eeorts to keep the present papers at a low technical level, the presentation of the subjects discussed in this part I is based only on simple algebraic arguments. This contrasts with the usual treatment based on a probabilistic approach, namely on the martingale approach. We intend, however, to present in the concluding part the probabilistic background and the probabilistic interpretation of the results discussed in the earlier parts. |
| Starting Page | 319 |
| Ending Page | 355 |
| Page Count | 37 |
| File Format | PDF HTM / HTML |
| Volume Number | 9 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
