Option Pricing Formulas Under a Change of Numèraire
25 Pages Posted: 19 Sep 2019
Date Written: September 10, 2019
We present new formulations of the Cox-Ross-Rubinstein and Black-Scholes formulas for European options through a suitable change of measure which corresponds to a change of numèraire for the underlying price process. Among other consequences, a closed formula for the price of an European call option at each node of the multiperiodal binomial tree is achieved, too. Some of the results contained herein should be compared with the analogous ones obtained by means of different techniques.
Keywords: Black-Scholes formula, binomial model, martingale measures, numèraire
JEL Classification: G12, C63
Suggested Citation: Suggested Citation