Option Pricing Formulas Under a Change of Numèraire

25 Pages Posted: 19 Sep 2019

See all articles by Antonio Attalienti

Antonio Attalienti

affiliation not provided to SSRN

Michele Bufalo

University of Rome I

Date Written: September 10, 2019

Abstract

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

Attalienti, Antonio and Bufalo, Michele, Option Pricing Formulas Under a Change of Numèraire (September 10, 2019). Available at SSRN: https://ssrn.com/abstract=3451116 or http://dx.doi.org/10.2139/ssrn.3451116

Antonio Attalienti

affiliation not provided to SSRN

Michele Bufalo (Contact Author)

University of Rome I ( email )

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