1999 | OriginalPaper | Buchkapitel
European Options in Continuous Time
verfasst von : Robert J. Elliott, P. Ekkehard Kopp
Erschienen in: Mathematics of Financial Markets
Verlag: Springer New York
Enthalten in: Professional Book Archive
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In this chapter we develop a continuous time theory which is the analogue of that in Chapters 1 to 3. The simple model consists of a riskless bond and a risky asset, which can be thought of as a stock. The dynamics of our model are described in Section 7.1. The following two sections present the fundamental results of Girsanov and martingale representation. These are then applied to discuss the hedging and pricing of European options. In particular, we establish the famous results of Black and Scholes, results which are applied widely in the industry in spite of the simplified nature of the model.