Derivative Pricing Theory: Call, Put Options and “Black, Scholes’” Hedged Portfolio

Fischer Black and Myron Scholes revolutionized the pricing theory of options by showing how to hedge continuously the exposure on the short position of an option. Consider the writer of a call option on a risky asset. S/he is exposed to …

Derivative Pricing Theory: Call, Put Options and “Black, Scholes’” Hedged Portfolio