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Black-Scholes without stochastics or PDEs

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  • Richard J. Martin

Abstract

We show how to derive the Black-Scholes model and its generalisation to the `exchange-option' (to exchange one asset for another) via the continuum limit of the Binomial tree. No knowledge of stochastic calculus or partial differential equations is assumed, as we do not use them.

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  • Richard J. Martin, 2023. "Black-Scholes without stochastics or PDEs," Papers 2301.09996, arXiv.org, revised Apr 2023.
    • Handle: RePEc:arx:papers:2301.09996
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    References listed on IDEAS

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    1. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
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