I can't solve the remaining integral!! I think the American case is out of scope for the book I'm using. One has to know how to solve optimization problems to derive the pricing formula for American options, This i will be able to do after i've read a course on in next semester. By posting your answer, you agree to the privacy policy and terms of service.

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Proof of the Black - Scholes pricing formula for European Call Option. Teodor Fredriksson 86 6. I went through Baxter and Rennie last night in fact and one of the problems was this exact problem.

Do you have baxter and rennie? Tried the substitution, still nothing I will try to find that book you mentioned. I was going to go through the derivation, but I think it is such a wonderful if not laborious process that I think if you dig out any decent financial mathematics text book it will enlighten you at the steps you went wrong. It seems i figured it out: Now onto the American ;.

finance - Proof of the Black - Scholes pricing formula for European Call Option - Mathematics Stack Exchange

Once you gone through this process once the put, and other pay offs are a variation on a theme right I hope. So what is this in aid of anyway? Sign up or log in StackExchange.

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Black–Scholes equation - Wikipedia

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