The Black-Scholes-Merton Model as an Idealization of Discrete-Time Economies

ISBN-13: 9781108707657 / Angielski / Miękka / 2019 / 214 str.

David M. Kreps

Opis

Examines whether continuous-time models in frictionless financial economies can be well approximated by discrete-time models.

Recenzje

'Continuous-time finance involves conceptual and technical complexities, which are often swept under the rug when the material is taught to economists. This book cuts through the complexities while providing excellent economic intuition and insight. It helps the reader develop a deeper appreciation of the foundations of modern finance theory, and of the connections between continuous- and discrete-time models in economics more generally.' Dimitri Vayanos, Professor of Finance, London School of Economics and Political Science

Spis treści

1. Introduction; 2. Finitely many states and dates; 3. Countinuous time and the Black-Scholes-Merton (BSM) Model; 4. BSM as an idealization of binomial-random-walk economies; 5. Random walks that are not binomial; 6. Barlow's example; 7. The Pötzelberger-Schlumprecht example and asymptotic arbitrage; 8. Concluding remarks, Part I: how robust an idealization is BSM?; 9. Concluding remarks, Part II: continuous-time models as idealizations of discrete time; Appendix.