<t>QuoteOriginally posted by: yugmorf2The equity value can be thought of as a call on the assets of the company, struck at the face value of the liabilities (Merton model). Viewed in this light, so long as the assets are not zero (no matter the level of liabilities), then the equity price can never ...

<t>Using Black Scholes formula, we know that value of call option is zero when the stock price is zero. We can arrive at the conclusion that the value of option is simply the discounted payoff at expiration. If we assume a lognormal random walk for asset prices, we can arrive at the conclusion that ...

<t>I was revising some topics on martingale thoery and the following is confusing me (I am doing something silly, but its not clicking). I already posted this to another forum - now posting to a wider audience.The following should be done using Ito. But what is wrong in this approach (it gives the w...