Speaker: Greg Anderson.
Title: The Black-Scholes Equation in a Discrete Setting.
Affiliation: BARRA, Inc.
Date: Friday, February 22, 2002.
Place and Time: Room 499 - Dirac Science Library, 3:00 pm.

Abstract. Many accounts of the Black-Scholes analysis start with an expository account of a discrete state and time framework in which the reader is firmly cautioned that the economically relevant measure on state space is usually not uniform. Typically the discrete setting is then abandoned in favor of the "real" model, geometric Brownian motion, and the Black-Scholes equation makes its appearance. In practice, this partial differential equation is solved numerically using a finite difference scheme which bears an uncanny resemblance to the expository discrete setting, with the striking exception that all branchings are treated equally. We aim to resolve the apparent contradiction and provide a discrete perspective on the Black-Sholes equation in the process.