QuoteOriginally posted by: listMy point relates not to pricing but for elementary calculus. We have a functionP ( t , S ) = f ( t , S ) + g ( t , S ) S where g is the partial derivative f in S.We consider difference P ( t + h , S ( t + h )) - P ( t , S ( t )) . There are two answers. 1st = ? [ f ( t + h , S ( t + h ) ) - f ( t , S ( t )) ] + [ S ( t + h ) - S ( t ) ] g ( t , S ( t )) 2nd = ? [ f ( t + h , S ( t + h ) ) - f ( t , S ( t )) ] + [ S ( t + h ) g ( t + h , S ( t + h ) ) - S ( t ) g ( t , S ( t )) ] 1st answer is from the book2nd answer is that it seems to be correct?What do you mean "there are two answers" ? To what? If what you want to do is to rewrite the difference P(t+h,S(t+h))-P(t,S(t)), then #2 is correct and #1 is wrong.Your paper is full of errors and it is obvious that you have no clue of what the Black-Scholes model is let alone how to derive it. If you believe that Hull's book is a good reference on the derivation of Black-Scholes then you are wrong. It is good for nothing and I wouldn't even call it a derivation. It's just intuition based.You need to spend two years or so studying mathematics and then you can try again.
Last edited by DoubleTrouble
on August 28th, 2011, 10:00 pm, edited 1 time in total.