An Initial Attempt at Pricing an Option

Carl Chiarella, Xuezhong (Tony) He () and Christina Sklibosios Nikitopoulos
Additional contact information
Christina Sklibosios Nikitopoulos: University of Technology Sydney

Chapter Chapter 3 in Derivative Security Pricing, 2015, pp 37-53 from Springer

Abstract: Abstract This chapter uses the concepts developed in Chap. 2 to illustrate the problem of option pricing as a discounted expected option payoff. By assuming that investors are risk neutral and using the Kolmogorov equation for the conditional probability, we demonstrate how the Black–Scholes option formula can be arrived. We also illustrate how the option price can be viewed in a quite natural way as a martingale and the Feynman–Kac formula, two very important concepts of continuous time finance.

Keywords: Stock Price; Option Price; Risk Free Rate; Kolmogorov Equation; Discount Cash Flow (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:dymchp:978-3-662-45906-5_3

Ordering information: This item can be ordered from
http://www.springer.com/9783662459065

DOI: 10.1007/978-3-662-45906-5_3

Access Statistics for this chapter

More chapters in Dynamic Modeling and Econometrics in Economics and Finance from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().