Abstract
We clarify a few aspects of the original method of Black and Scholes for pricing a European call option, and at the same time make sure that each step is mathematically justified. In the process, we have to confront a novel free boundary problem for parabolic equations.
Keywords Derivative pricing, Black Scholes equation, call option, self financing, hedging portfolio, parabolic equation.
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© 2003 Springer-Verlag Berlin Heidelberg
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Rosu, I., Stroock, D. (2003). On the Derivation of the Black–Scholes Formula. In: Azéma, J., Émery, M., Ledoux, M., Yor, M. (eds) Séminaire de Probabilités XXXVII. Lecture Notes in Mathematics, vol 1832. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-40004-2_18
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DOI: https://doi.org/10.1007/978-3-540-40004-2_18
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Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-540-20520-3
Online ISBN: 978-3-540-40004-2
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