Option prices as probabilities. A new look at generalized Black-Scholes formulae (Q2654811): Difference between revisions

The monograph consists of eight chapters, followed by three complements and three appendices. It starts with the Black-Scholes formulae for call and put options and their relationship, and a new look on these objects is developed. Chapter 1 presents two new formulations of the Black-Scholes formula, the first one in terms of first and last passage times of a Brownian motion with drift, and the second one as an expectation with respect to the law of the square of a Brownian motion. Chapter 2 is devoted to the generalized Black-Scholes formulae presented in terms of last passage times of underlying martingales and local martingales. It is shown in chapter 3 how the results obtained in chapter 2 for supermartingales associated with a last passage time at a given level fit with a more general representation of Azéma supermartingales. Also, a representation problem for Skorokhod submartingales is discussed. Chapter 4 describes a family of Black--Scholes perpetuities, whereas chapter 5 studies last passage times up to a finite horizon. This leads to the definition of the notion of past-future Brownian martingales and their detailed study. Chapter 6 presents put option as joint distribution function in strike and maturity. In this connection, the notion of pseudo-inverses is discussed, and existence and properties of pseudo-inverses for Bessel and related processes and for diffusions are established in chapters 7 and 8.