Chapter

Arbitrage Pricing

Tomas Björk

in Arbitrage Theory in Continuous Time

Second edition

Published in print March 2004 | ISBN: 9780199271269
Published online October 2005 | e-ISBN: 9780191602849 | DOI: http://dx.doi.org/10.1093/0199271267.003.0007

Series: Oxford Finance Series

Arbitrage Pricing

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This chapter examines a special case of the general model derived in Chapter 6. It derives the model of a financial market, and then analyses the pricing of financial derivatives, specifically the European call option. Black formulas are derived for options written on a futures contract. Practice exercises are included.

Keywords: financial derivative; European call option; arbitrage pricing; financial market; contingent claims; futures; options; volatility

Chapter.  10130 words.  Illustrated.

Subjects: Financial Markets

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