In this chapter we present some of the fundamental ideas of arbitrage pricing in continuous time, illustrating Black-Scholes theory from a point of view that is, as far as possible, elementary and close to the original ideas in the papers by Merton , Black and Scholes . In Chapter 10 the topic will be treated in a more general fashion, fully exploiting martingale and PDEs theories.
KeywordsCauchy Problem Risky Asset Call Option Implied Volatility Underlying Asset
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