The Black–Scholes–Merton Model as an Idealization of Discrete-Time Economies

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The Black–Scholes–Merton Model as an Idealization of Discrete-Time Economies is written by David M. Kreps and published by Cambridge University Press. It's available with International Standard Book Number or ISBN identification 1108775500 (ISBN 10) and 9781108775502 (ISBN 13).

This book examines whether continuous-time models in frictionless financial economies can be well approximated by discrete-time models. It specifically looks to answer the question: in what sense and to what extent does the famous Black-Scholes-Merton (BSM) continuous-time model of financial markets idealize more realistic discrete-time models of those markets? While it is well known that the BSM model is an idealization of discrete-time economies where the stock price process is driven by a binomial random walk, it is less known that the BSM model idealizes discrete-time economies whose stock price process is driven by more general random walks. Starting with the basic foundations of discrete-time and continuous-time models, David M. Kreps takes the reader through to this important insight with the goal of lowering the entry barrier for many mainstream financial economists, thus bringing less-technical readers to a better understanding of the connections between BSM and nearby discrete-economies.