Abstract
The paper demonstrates the construction of a stock price stochastic process that aligns with observed option prices, drawing inspiration from a manuscript by Professor Erio Castagnoli that employs the concept of a non-linear monotonic transformation of a standard Brownian motion. The paper includes a detailed numerical example that illustrates the implementation of this straightforward and ingenious idea.
| Original language | English |
|---|---|
| Pages (from-to) | 73-92 |
| Number of pages | 20 |
| Journal | Decisions in Economics and Finance |
| Volume | 48 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - Jun 2025 |
Keywords
- Black-Scholes model
- Brownian motion
- Implied volatility surface
- Monte Carlo simulation
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