Mathematical Elements of Finance in Continuous Time
Journal Title: Libyan Journal of Engineering Science and Technology - Year 2024, Vol 4, Issue 1
Abstract
The aim of this paper is to provide a short study futures contract pricing. In the beginning we start with Ito formula which has many applications especially in area of financial mathematics based on options pricing theory which evaluate a value of an option contract by assigning a price that also based on the calculated probability that the contract will finish in the money at expiration. Mostly option pricing theory tools us an evolution of an option's fair value which traders in integrate into their strategies thus we saw that aimed of it is to compute the probability that an option will be exercised or be in the money at expiration .Derivative valuation often impose the input of an unobservable market price of risk fortunately the risk-neutral approach provides two effective results which can help identify the price of risk .In addition we presented the concept of call and put option and their effects of buying or selling at same strike price. Furthermore, we work with the slightly more general model for stock prices as an obvious example to explanted the Black-Scholes and martingales.
Authors and Affiliations
A. Ahlam¹, H. Ebtessam²
Keywords
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