--%>

Explain Black–Scholes model

Explain Black–Scholes model.

E

Expert

Verified

The Black-Scholes model is depends on geometric Brownian motion for asset price S as

dS = µSdt + σSdX.

The Black-Scholes partial differential equation for value V of an alternative is then

∂V/∂t + ½ σ2S2 (∂2V/∂S2) + rS (∂V/∂S) - rV = 0

   Related Questions in Mathematics

  • Q : Row-echelon matrix Determine into which

    Determine into which of the following 3 kinds (A), (B) and (C) the matrices (a) to (e) beneath can be categorized:       Type (A): The matrix is in both reduced row-echelon form and row-echelon form. Type (B): The matrix

  • Q : Formulating linear program of a

    A software company has a new product specifically designed for the lumber industry. The VP of marketing has been given a budget of $1,35,00to market the product over the quarter. She has decided that $35,000 of the budget will be spent promoting the product at the nat

  • Q : Profit-loss based problems A leather

    A leather wholesaler supplies leather to shoe companies. The manufacturing quantity requirements of leather differ depending upon the amount of leather ordered by the shoe companies to him. Due to the volatility in orders, he is unable to precisely predict what will b

  • Q : Statistics math Detailed explanation of

    Detailed explanation of requirements for Part C-1 The assignment states the following requirement for Part 1, which is due at the end of Week 4: “Choose a topic from your field of study. Keep in mind you will need to collect at least [sic] 3- points of data for this project. Construct the sheet y

  • Q : Budgeted cash disbursements The ABC

    The ABC Company, a merchandising firm, has budgeted its action for December according to the following information: • Sales at $560,000, all for cash. • The invoice cost for goods purc

  • Q : Problem on Prime theory Suppose that p

    Suppose that p and q are different primes and n = pq. (i) Express p + q in terms of Ø(n) and n. (ii) Express p - q in terms of p + q and n. (iii) Expl

  • Q : Who firstly discovered mathematical

    Who firstly discovered mathematical theory for random walks, that rediscovered later by Einstein?

  • Q : Who independently developed

    Who independently developed a model for simply pricing risky assets?

  • Q : Probability assignments 1. Smith keeps

    1. Smith keeps track of poor work. Often on afternoon it is 5%. If he checks 300 of 7500 instruments what is probability he will find less than 20substandard? 2. Realtors estimate that 23% of homes purchased in 2004 were considered investment properties. If a sample of 800 homes sold in 2

  • Q : State Fermat algorithm The basic Fermat

    The basic Fermat algorithm is as follows: Assume that n is an odd positive integer. Set c = [√n] (`ceiling of √n '). Then we consider in turn the numbers c2 - n; (c+1)2 - n; (c+2)2 - n..... until a perfect square is found. If th