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Options (II): Continuous-Time Models, Black–Scholes and Extensions

In: Capital Market Finance

Author

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  • Patrice Poncet

    (ESSEC Business School)

  • Roland Portait

    (ESSEC Business School)

Abstract

This chapter presents the continuous-time model of Black and Scholes and some of its extensions due to Merton, Black. The Black–Scholes model is adapted to European options written on spot assets that do not distribute dividends or coupons before the option expires. Extensions to the standard model are suitable for different types of the underlying asset, among which we discuss the more general Black–Scholes–Merton model with deterministic but not constant volatility, Black’s model applying to futures contracts, Garman and Kholhagen’s model for options on exchange rates, Margrabe’s model for exchange options, and Heston’s model with stochastic volatility.

Suggested Citation

  • Patrice Poncet & Roland Portait, 2022. "Options (II): Continuous-Time Models, Black–Scholes and Extensions," Springer Texts in Business and Economics, in: Capital Market Finance, chapter 11, pages 399-452, Springer.
    • Handle: RePEc:spr:sptchp:978-3-030-84600-8_11
    DOI: 10.1007/978-3-030-84600-8_11
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