most recent 30 from http://mathoverflow.net 2013-05-25T21:05:49Z http://mathoverflow.net/feeds/question/64480 http://www.creativecommons.org/licenses/by-nc/2.5/rdf http://mathoverflow.net/questions/64480/better-understanding-of-the-datar-mathews-method-real-option-pricing Corn 2011-05-10T09:08:04Z 2011-05-10T10:01:41Z

<p>Hi all,</p> <p>in their paper "European Real Options: An intuitive algorithm for the Black and Scholes Formula" Datar and Mathews provide a proof in the appendix on page 50, which is not really clear to me. It's meant to show the equivalence of their formula $E_{o}(max(s_{T}e^{-\mu T}-xe^{-rT},0))$ and Black and Scholes.</p> <p>They refer to Hull(2000), define $y=s_{T}e^{-\mu T}$, and then do the following transformation:</p> <p>$E_{o}(max(s_{T}e^{-\mu T}-xe^{-rT},0))$ $=\intop_{-xe^{-rT}}^{\infty}(s_{T}*e^{-\mu T})g(y)dy$ $=E(s_{T}e^{-\mu T})N_{d_{1}}-xe^{-rT}N_{d_{2}}$</p> <p>Could anybody help me out?</p> <p>Thanks in advance.</p> <p>Corn</p>

http://mathoverflow.net/questions/64480/better-understanding-of-the-datar-mathews-method-real-option-pricing/64483#64483 Corn 2011-05-10T10:01:41Z 2011-05-10T10:01:41Z

<p>Thanks. I moved the topic to <a href="http://quant.stackexchange.com/questions/1148/better-understanding-of-the-datar-mathews-method-real-option-pricing" rel="nofollow">http://quant.stackexchange.com/questions/1148/better-understanding-of-the-datar-mathews-method-real-option-pricing</a> .</p>