The Black-Scholes-Merton Model as an Idealization of Discrete-Time Economies (Paperback) (ISBN-13: 9781108707657)

This book examines whether continuous-time models in frictionless financial economies can be well approximated by discrete-time models. It specifically looks to answer the question: in what sense and to what extent does the famous Black-Scholes-Merton (BSM) continuous-time model of financial markets idealize more realistic discrete-time models of those markets? While it is well known that the BSM model is an idealization of discrete-time economies where the stock price process is driven by a binomial random walk, it is less known that the BSM model idealizes discrete-time economies whose stock price process is driven by more general random walks. Starting with the basic foundations of discrete-time and continuous-time models, David M. Kreps takes the reader through to this important insight with the goal of lowering the entry barrier for many mainstream financial economists, thus bringing less-technical readers to a better understanding of the connections between BSM and nearby discrete-economies.

Author: David M. Kreps
ISBN-10: 1108707653
ISBN-13: 9781108707657
Publisher: Cambridge University Press
Language: English
Published: 09/19/2019
Pages: 214
Format: Paperback
Weight: 0.70lbs
Size: 8.96h x 6.44w x 0.47d