金融时间序列_4.pdf

Option Pricing Introduction An option is a financial instrument which gives its holder the right to buy or sell an asset within a specified period of time It is termed European if its holder is allowed only to exercise the right to the claim on its expiration date T ; otherwise it is called American A call option gives the right to buy an asset while a put option gives the right to sell one Specifically, a European call option with strike price K gives its holder the right to buy the underlying asset at a price of K on date T If ST is the asset price on expiration date T , the call option payoff is (ST − K)+ := max{0, ST − K } The Black-Scholes Model In order to make the option pricing problem tractable, Black and Scholes (1973) made the following assumptions on the market and for the option: The short-term interest rate is a known constant over time The asset pays no dividends or other distributions There are no transaction costs in buying or selling the asset or the option It is possible to borrow any fraction of the price of a security to buy it or to hold it, at the short-term interest rate There are no penalties to short selling The asset price follows a geometric Brownian motion with constant volatility Specifically, it is assumed that there exist an asset and a zero-coupon bond maturing at T , of constant return r The randomness of the asset price {S , t ≥ 0} is t attributable to a fully observable standard Brownian motion {W , t ≥ 0}, which is a continuous-time t stochastic process with independent increments that are normally distributed If s ≤ t, Wt − Ws is independent of Wu for all u ≤ s [Markov property] If s ≤ t, Wt − Ws is normally distribut