Pricing European options : a model-free approach

• Main Author: Nkosi, Siboniso Confrence
• Other Authors: Mhlanga, Farai J.
• Language: en
• Published: University of the Western Cape 2017
• Subjects: Model free; Price path; European options; Continuous time
• Online Access: http://hdl.handle.net/11394/5666

>Magister Scientiae - MSc === This paper focuses on the newly revived interest to model free approach in finance. Instead of postulating some probability measure it emerges in a form of an outer-measure. We review the behavior of a market stock price and the stochastic assumptions imposed to the stock price when deriving the Black-Scholes formula in the classical case. Without any stochastic assumptions we derive the Black-Scholes formula using a model free approach. We do this by means of protocols that describe the market/game. We prove a statement that prices a European option in continuous time.