Average constant-rate Black-Scholes model prices of a fixed terminal payoff over . Tilting this Gaussian by the discount factor shifts its mean by ; combining the resulting log-price variance with stock variance gives the displayed effective parameters. Thus the average equals the Black-Scholes price with those parameters, whenever the expectation is well defined. This is an average of constant-parameter prices, rather than a specification of an adapted stochastic short-rate market.

Articles by others on the same topic (NaN)

There are currently no matching articles.