Change of Time Method: Applications to Mathematical Finance. II.

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Change of Time Method: Applications to Mathematical Finance. II. Anatoliy Swishchuk Math &amp; Comp Finance Lab Dept of Math &amp; Stat, U of C “Lunch at the Lab” Talk November 8, 2005. Outline. Change of Time Method (CTM) (minutes of the previous talk) Mean-Reverting Model (MRM)

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### Change of Time Method: Applications to Mathematical Finance. II.

Anatoliy Swishchuk

Math & Comp Finance Lab

Dept of Math & Stat, U of C

“Lunch at the Lab” Talk

November 8, 2005

Outline
• Change of Time Method (CTM) (minutes of the previous talk)
• Mean-Reverting Model (MRM)
• Solution of MRM by CTM
• Option Pricing Formula
• Black - Scholes Formula Follows: L=0, a^*=-r
• Numerical Example (AECO Natural Gas Index)
Expression for C_T

C_T=BS(T)+A(T)

Expression for A(T).II.

Characteristic function of Eta(T):

http://www.math.ucalgary.ca/research/preprint.php

The End

Thank You for Your Attention and Time!