Option prices in terms of probability functions
Time and place
1 PM on Thursday, April 28th, 2011; NAC 6-113
Ju-Yi Yen (Vanderbilt University)
Abstract
The Black-Scholes model is an important starting point for studying financial derivatives. In the Black-Scholes formula, the evolution of prices of a risky asset is described by an exponential martingale associated to a Brownian motion and, as a consequence, the Black-Scholes function is increasing and bounded and can be written as a distribution function. We shall explore the connection between Black-Scholes functions and their distribution functions. We study the distribution function in terms of the last passage times, and extend the underlying martingale beyond the Brownian framework. Explicit examples of computations of these laws are given.
