European Style Derivatives

You-lan Zhu, Xiaonan Wu, I-Liang Chern and Zhi-zhong Sun
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You-lan Zhu: University of North Carolina
Xiaonan Wu: Hong Kong Baptist University
I-Liang Chern: National Taiwan University
Zhi-zhong Sun: Southeast University

Chapter 2 in Derivative Securities and Difference Methods, 2013, pp 17-103 from Springer

Abstract: Abstract As examples, in Figs.1.1–1.7 we showed how the prices of assets vary with time t. Figure 2.1 shows the stock price of Microsoft Inc. in the period March 30, 1999, to June 8, 2000. From these figures, we can see the following: the graphs are jagged, and the size of the jags changes all the time. This means that we cannot express S as a smooth function of t, and it is difficult to predict exactly the price at time t from the price before time t. It is natural to think of the price at time t as a random variable. Now let us give a model for such a random variable.

Keywords: Stock Price; Asset Price; Stochastic Differential Equation; Option Price; Wiener Process (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/978-1-4614-7306-0_2

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