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Entropy 2000, 2(2), 70-77; doi:10.3390/e2020070
Article

Simple Entropic Derivation of a Generalized Black-Scholes Option Pricing Model

Dept. of Finance, 108 PBAB, Univ. of Iowa, Iowa City, IA., USA
Received: 19 January 2000 / Accepted: 24 March 2000 / Published: 4 April 2000
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Abstract

A straightforward derivation of the celebrated Black-Scholes Option Pricing model is obtained by solution of a simple constrained minimization of relative entropy. The derivation leads to a natural generalization of it, which is consistent with some evidence from stock index option markets.
Keywords: option pricing; entropic martingale measure; Black-Scholes; asset pricing option pricing; entropic martingale measure; Black-Scholes; asset pricing
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Stutzer, M.J. Simple Entropic Derivation of a Generalized Black-Scholes Option Pricing Model. Entropy 2000, 2, 70-77.

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