ABSTRACT
In this chapter, we introduce the Black-Scholes-Merton model, that is the basic model in option pricing. We see how this model is constructed from probabilistic and from non-arbitrage arguments. Moreover, we observe that when we have infinity time steps in a Binomial model, it converges to the Black-Scholes-Merton model.
Similar to Chapter 5, we wonder about the Black-Scholes-Merton formula sensitivities. In this case, the Greeks have analytical formulae which allow us to understand the behavior in general cases.
