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2003•Chinese Journal of Applied Probability and StatistiesRequires access

Distribution of Q Process Integral and its Application in the Black and Scholes Equation

Jing-Feng Tian, Zheng Liang

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Abstract

Options are financial instruments designed to protect investors from the stock market randomness. In 1973, Black, Scholes and Merton proposed a very popular option pricing method using stochastic differential equations within the Ito interpretation. We give a analysis and numerical simulations for a Black and Scholes equation with Q process volatility.

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What this paper is about

Options are financial instruments designed to protect investors from the stock market randomness. In 1973, Black, Scholes and Merton proposed a very popular option pricing method using stochastic differential equations within the Ito interpretation. We give a analysis and numerical simulations for a Black and Scholes equation with Q process volatility.

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Available abstract

Options are financial instruments designed to protect investors from the stock market randomness. In 1973, Black, Scholes and Merton proposed a very popular option pricing method using stochastic differential equations within the Ito interpretation. We give a analysis and numerical simulations for a Black and Scholes equation with Q process volatility.

Key concepts: Black–Scholes model, Mathematics, Valuation of options, Randomness, Stochastic differential equation, Volatility (finance), Applied mathematics, Stochastic volatility

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