Brownian Motion and the Black-Scholes Option Pricing Formula
Abstract
The Brownian Motion of visible particles suspended in a fluid led to one of the first accurate determination of the mass of the visible molecules. Mathematical model of Brownian motion has numerous real world applications. For instance stock market fluctuations. The Black- Scholes model for calculating the premium of an option was introduced in 1973 in a paper published in Journal of Political Economy developed by three Economists –Fisher Black, Myron Scholes and Robert Merton and is world’s most well known Option Pricing Model . In 1997 all was awarded Nobel Prize in Economics.
Keywords: Brownian Motion, Market fluctuations, Arbitrage Theorem, Random Walk, Hitting Time, Betting.
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ISSN (Paper)2222-1697 ISSN (Online)2222-2847
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