Abstract
In this chapter we develop a continuous time theory which is the analogue of that in Chapters 1 to 3. The simple model consists of a riskless bond and a risky asset, which can be thought of as a stock. The dynamics of our model are described in Section 7.1. The following two sections present the fundamental results of Girsanov and martingale representation. These are then applied to discuss the hedging and pricing of European options. In particular, we establish the famous results of Black and Scholes, results which are applied widely in the industry in spite of the simplified nature of the model.
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© 1999 Springer Science+Business Media New York
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Elliott, R.J., Kopp, P.E. (1999). European Options in Continuous Time. In: Mathematics of Financial Markets. Springer Finance. Springer, New York, NY. https://doi.org/10.1007/978-1-4757-7146-6_7
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DOI: https://doi.org/10.1007/978-1-4757-7146-6_7
Publisher Name: Springer, New York, NY
Print ISBN: 978-1-4757-7148-0
Online ISBN: 978-1-4757-7146-6
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