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Black-Scholes without stochastics or PDEs

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  • Richard J. Martin

Abstract

We show how to derive the Black-Scholes model and its generalisation to the `exchange-option' (to exchange one asset for another) via the continuum limit of the Binomial tree. No knowledge of stochastic calculus or partial differential equations is assumed, as we do not use them.

Suggested Citation

  • Richard J. Martin, 2023. "Black-Scholes without stochastics or PDEs," Papers 2301.09996, arXiv.org, revised Apr 2023.
    • Handle: RePEc:arx:papers:2301.09996
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    File URL: http://arxiv.org/pdf/2301.09996
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    References listed on IDEAS

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    1. Margrabe, William, 1978. "The Value of an Option to Exchange One Asset for Another," Journal of Finance, American Finance Association, vol. 33(1), pages 177-186, March.
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