2008•Journal of Hefei Teachers CollegeRequires access

Deriving the Black-Scholes Formula with the Risk-neutral Hypothesis

LI Mei-rong

Abstract

The derivation of Black-Scholes option pricing formula is very complicated,and it needs some advanced mathematical knowledge such as stochastic process,stochastic differential equation.This paper provides two kinds of simple methods of deriving Black-Scholes option pricing formula with the risk-neutral hypothesis that enable more readers only with elementary probability theory and integral calculus to understand.

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Available abstract

Key concepts: Black–Scholes model, Stochastic differential equation, Mathematics, Mathematical economics, Simple (philosophy), Applied mathematics, Calculus (dental), Valuation of options