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        Option pricing

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        Bachelor's thesis.pdf (466.6Kb)
        Publication date
        2014
        Author
        Haringa, L.
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        Summary
        Using mathematical techniques at undergraduate level, an introduction to axiomatic probability theory and stochastic calculus facilitates the classic derivation of the Black-Scholes-Merton approach in valuating a European option. Brownian motion is derived as the limit of a scaled symmetric random walk and its quadratic variation is determined. This serves to evaluate the Itô integral and the Itô-Doeblin change-of-variables formula. After employing these equations to arrive at the partial differential equation for the option value, the solution is determined by the use of an equivalent risk-neutral measure.
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        https://studenttheses.uu.nl/handle/20.500.12932/18449
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