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A note on a generalized Black-Scholes formula

Author

Listed:
  • Bakhodir A Ergashev

    (Washington University in St. Louis)

Abstract

A generalized Black-Scholes formula is presented for the case when the volatility part of the percentage changes in a stock price obeys a mean reverting Ornstein-Uhlenbeck process. When the parameter of the Ornstein-Uhlenbeck process converges to zero the generalized formula converges to the Black-Scholes formula.

Suggested Citation

  • Bakhodir A Ergashev, 2002. "A note on a generalized Black-Scholes formula," Finance 0203006, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0203006
    Note: Type of Document - none; prepared on IBM PC - PC-TEX; to print on HP/PostScript/Franciscan monk; pages: 5 ; figures: none. We never published this piece and now we would like to reduce our mailing and xerox cost by posting it.
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    More about this item

    Keywords

    Black_Scholes formula; Option pricing; Ornstein-Uhlenbeck processes;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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