This is a very basic and accessible introduction to option pricing, invoking a minimum of stochastic analysis and requiring only basic mathematical skills. It covers the theory essential to the statistical modeling of stocks, pricing of derivatives with martingale theory, and computational finance including both finite-difference and Monte Carlo methods.1.1.2 Stochastic Finance To derive the fair price of an option one constructs a portfolio which replicates perfectly the optiona#39;s payoff. Such a portfolio is called the hedging portfolio, and is an investment in a bond and the underlying stock.
|Title||:||Option Theory with Stochastic Analysis|
|Author||:||Fred Espen Benth|
|Publisher||:||Springer Science & Business Media - 2003-11-26|