In the same year, Black and Scholes (1973), andMerton (1973), published their seminal papers on the theoryof option pricing. Since then the growth of the field ofderivative securities has been phenomenal. In recognition of theirpioneering and fundamental contribution to option valuation,Scholes and Merton received in 1997 the Award of the Nobel Prizein Economics. Unfortunately, Black was unable to receive the awardsince he had already passed away.In essence, the Black-Scholes model states that by continuouslyadjusting the proportions of stocks and options in a portfolio,the investor can create a riskless hedge portfolio, where allmarket risks are A quadratic approximation to American prices due to Barone-Adesi and Whaley.Next: An approximation to the Up: Approximations Previous: Approximations Contents IndexA quadratic approximation to American prices due to Barone-Adesi and Whaley.We now discuss an approximation to the option price of an American option on acommodity having a continuous payout, described in Barone-Adesi and Whaley (1987)(BAW).
Their solution technique finds an approximate solution to thedifferential equation. Here is the (unknown) formula that determines the priceof the contingent claim. Excellent interface. Great support - shoutout to Alex:) Only problem is that the risk exposure (i.e. maximum purchaseable option) is not forthcoming.
Call put option example quadratic equation