Department of Mathematical Sciences / Institutionen för matematiska vetenskaper

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Browsing Department of Mathematical Sciences / Institutionen för matematiska vetenskaper by Subject "Black-Scholes"

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    Option Pricing for Continuous-Time Log-Normal Mixtures
    (2012-06-08) Björnander, Joakim; University of Gothenburg/Department of Mathematical Science; Göteborgs universitet/Institutionen för matematiska vetenskaper
    In this thesis we study the log-normal mixture option pricing model proposed by Brigo and Mercurio [1]. This model is of particular interest since it is an analytically tractable generalization of the Black-Scholes option pricing model, but essentially of the same degree of complexity when it comes to computing option prices and hedging. Therefore, if the Brigo-Mercurio model proved to be better in terms of hedging it would be preferable to the Black-Scholes model from a market practitioner's point of view. In the latter part of this thesis we will investigate various methods of hedging and present the results.