The Black-Scholes-Merton Model as an Idealization of Discrete-Time Economies
(Book #63 in the Econometric Society Monographs Series)
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Book Overview
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.
Format:Hardcover
Language:English
ISBN:1108486363
ISBN13:9781108486361
Release Date:November 2019
Publisher:Cambridge University Press
Length:214 Pages
Weight:0.94 lbs.
Dimensions:0.6" x 6.3" x 9.3"
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