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The pricing kernel and the Black-Scholes formula

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  • Franco Molinari

    (DISA, Faculty of Economics, Trento University)

Abstract

This note provides an introduction to the pricing kernel methodology for financial derivatives. In order to illustrate the pricing kernel approach we apply it to the Black and Scholes model and obtain the famous Black and Scholes formula for the fair price of an European call option.

Suggested Citation

  • Franco Molinari, 2009. "The pricing kernel and the Black-Scholes formula," DISA Working Papers 0908, Department of Computer and Management Sciences, University of Trento, Italy, revised 26 Jan 2010.
  • Handle: RePEc:trt:disawp:0908
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    References listed on IDEAS

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    1. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
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