Discrete Time vs Continuous Time Stock-price Dynamics and implications for Option Pricing
| dc.creator | Brigo, Damiano | |
| dc.creator | Mercurio, Fabio | |
| dc.date | 2008-12-21 | |
| dc.date.accessioned | 2026-07-07T12:21:08Z | |
| dc.date.available | 2026-07-07T12:21:08Z | |
| dc.description | In the present paper we construct stock price processes with the same marginal log-normal law as that of a geometric Brownian motion and also with the same transition density (and returns' distributions) between any two instants in a given discrete-time grid. We then illustrate how option prices based on such processes differ from Black and Scholes', in that option prices can be either arbitrarily close to the option intrinsic value or arbitrarily close to the underlying stock price. We also explain that this is due to the particular way one models the stock-price process in between the grid time instants which are relevant for trading. The theoretical result concerning scalar stochastic differential equations with prescribed diffusion coefficient whose densities evolve in a prescribed exponential family, on which part of the paper is based, is presented in detail. | |
| dc.description | A short version of this paper by the same authors has appeared in Finance and Stochastics 4, february 2000 | |
| dc.identifier | https://arxiv.org/abs/0812.4010 | |
| dc.identifier | http://arxiv.org/abs/0812.4010 | |
| dc.identifier.uri | http://salesiana.dossiersoluciones.com/handle/123456789/213271 | |
| dc.subject | Pricing of Securities | |
| dc.title | Discrete Time vs Continuous Time Stock-price Dynamics and implications for Option Pricing | |
| dc.type | text |