Option Prices as Probabilities: A New Look at Generalized Black-Scholes Formulae

ISBN-13: 9783642103940 / Angielski / Miękka / 2010 / 270 str.

Christophe Profeta;Bernard Roynette;Marc Yor

Opis

Discovered in the seventies, Black-Scholes formula continues to play a central role in Mathematical Finance. We recall this formula. Let (B, t? 0; F, t? 0, P) - t t note a standard Brownian motion with B = 0, (F, t? 0) being its natural ?ltra- 0 t t tion. Let E: = exp B?, t? 0 denote the exponential martingale associated t t 2 to (B, t? 0). This martingale, also called geometric Brownian motion, is a model t to describe the evolution of prices of a risky asset. Let, for every K? 0: + ? (t): =E (K?E ) (0.1) K t and + C (t): =E (E?K) (0.2) K t denote respectively the price of a European put, resp. of a European call, associated with this martingale. Let N be the cumulative distribution function of a reduced Gaussian variable: x 2 y 1 ? 2 ? N (x): = e dy. (0.3) 2? The celebrated Black-Scholes formula gives an explicit expression of? (t) and K C (t) in terms ofN: K ? ? log(K) t log(K) t ? (t)= KN ? + ?N ? ? (0.4) K t 2 t 2 and ? ?

Spis treści

Reading the Black-Scholes Formula in Terms of First and Last Passage Times.- Generalized Black-Scholes Formulae for Martingales, in Terms of Last Passage Times.- Representation of some particular Azéma supermartingales.- An Interesting Family of Black-Scholes Perpetuities.- Study of Last Passage Times up to a Finite Horizon.- Put Option as Joint Distribution Function in Strike and Maturity.- Existence and Properties of Pseudo-Inverses for Bessel and Related Processes.- Existence of Pseudo-Inverses for Diffusions.

Blurb

The Black-Scholes formula plays a central role in Mathematical Finance; it gives the right price at which buyer and seller can agree with, in the geometric Brownian framework, when strike K and maturity T are given. This yields an explicit well-known formula, obtained by Black and Scholes in 1973.

The present volume gives another representation of this formula in terms of Brownian last passages times, which, to our knowledge, has never been made in this sense.

The volume is devoted to various extensions and discussions of features and quantities stemming from the last passages times representation in the Brownian case such as: past-future martingales, last passage times up to a finite horizon, pseudo-inverses of processes... They are developed in eight chapters, with complements, appendices and exercises.