Discrete Approximations

Gopinath Kallianpur and Rajeeva L. Karandikar
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Gopinath Kallianpur: University of North Carolina, Department of Statistics
Rajeeva L. Karandikar: Indian Statistical Institute, Department of Mathematics & Statistics

Chapter 11 in Introduction to Option Pricing Theory, 2000, pp 205-213 from Springer

Abstract: Abstract In this chapter we first derive a discrete approximation to the Black and Scholes PDE as well as to the Feynman-Kac formula for its solution. We follow, in part, the work of Merton and Samuelson as presented in the book by (Merton, 1990), and, also we follow the treatment of the binomial option pricing formula introduced in (Duffie, 1992) for the purpose of working out numerical approximations.

Keywords: Option Price; Discrete Approximation; Standard Brownian Motion; Striking Price; Hedging Strategy (search for similar items in EconPapers)
Date: 2000
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4612-0511-1_11

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DOI: 10.1007/978-1-4612-0511-1_11

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