The Central Limit Theorem

Abstract

The Central Limit Theorem is one of the classical results in statistics with many applications in actuarial mathematics, finance, and risk management and a host of other not necessarily economic disciplines. In Chapter 14 we will apply it to the derivation of the Black—Scholes formula from the binomial Cox—Ross—Rubinstein model. In this chapter we present a special version of the Central Limit Theorem which is also known as the Theorem of de Moivre—Laplace. A complete proof of the theorem will be given in an appendix.