Dresden 2003 – scientific programme

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AKSOE: Physik sozio-ökonomischer Systeme

AKSOE 1: Finanzm
ärkte und Risikomanagement I

AKSOE 1.6: Talk

Monday, March 24, 2003, 12:00–12:30, BAR/205

Geometric Brownian motion and option pricing — •Ulrich Nögel — Fraunhofer ITWM, Gottlieb-Daimler-Strasse 49, 67663 Kaiserslautern, Germany

Geometric Browian motion is maybe one of the most important models used in modern finance. Built upon it is the famous Black-Scholes theory, which was the major break-through in option pricing and its reliability as a workhorse in daily trading and risk-management was one of the main reasons for the rapidly growing market for plain vanilla and exotic options.

However, the more and more complex options which are nowadays traded on the market (especially structured products like cliquet options) require more sophisticated models. We present some possible extensions of the geometric Brownian motion, where we focus on these models which are actually used and considered to the state-of-the-art in today’s financial business.