The Black Scholes model assumes the following dynamics for the underlying, well known as the Geometric Brownian Motion: $$dS_t=S_t(\mu dt+\sigma dW_t)$$ Then the solution is given: ...
In most textbooks Ito's lemma is derived (on different levels of technicality depending on the intended audience) and then only the classic examples of Geometric Brownian motion and the Black-Scholes ...
I'm attempting to implement aforementioned SVCJ model by Duffie et al in MATLAB. so far without success. It's supposed to price vanilla (european) calls . parameters provided, the expected price is: ...
Coming from physics, I am used to the fact that the Ito interpretation of most natural stochastic equations is wrong, and one should be using Stratonovich calculus instead (of course they are ...
Self-financing is an important concept in financial product replicating, normally used in pricing. I read about several ways to derive Black-Scholes-Merton (BSM) formula. Seems some approaches ...
I am going through the derivation of CMS convexity from the notes of Lesniewski There is a transformation from $T_p$ forward measure to annuity measure $Q$ as $$ ...