Derivative Pricing Beyond Black—Scholes

Part of the Texts and Monographs in Physics book series (TMP)


In the two preceding chapters, we have observed that the price dynamics of real-world securities differs significantly from geometric Brownian motion, most importantly by fat tails in the return distributions and by volatility correlations. The fundamental assumptions behind the Black-Scholes theory of option pricing and hedging do not hold in real markets. More general methods which include these stylized facts are called for.


Option Price Implied Volatility Geometric Brownian Motion Residual Risk Forward Contract 
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Copyright information

© Springer-Verlag Berlin Heidelberg 2005

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