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Standard Proofs:_13,14,15

E

Edwin

Member
As far as I have seen, the proofs in Chapters 13, 14 & 15 have never been asked in any past CT8 exam.

These are;

  1. Chapter 13

    -Proof of the Black Scholes PDE using PDE's (with and without Dividends)

  2. Chapter 14 (Martingale Approach, Discrete)

    - 5 step method in discrete time

  3. Chapter 15 (Martingale Approach, Continous)


    - 5 step method in continuous time (without dividends)

    - Garman Kohlhagen form of the Black Scholes (without Dividends), this also can be done , using the ''curtate expectation of the log-normal''(formula for truncated moments on page 18 of the Tables.)

    - Proof of the Black Scholes PDE (using Martingales)

    - 5 step method in continuous time (with dividends)

    - Garman Kohlhagen form of the Black Scholes (with Dividends) can also be done via the ''curtate expectation of the log-normal''~quoting Oxymoron
Why hasn't this proofs been asked before, and should we expect any questions from these in the exam?
*Pardon me if I'm wrong, still busy with past papers.
 
The BS PDE derivation came up in both 109 April 2002 Q7, CT8 April 2007 Q1

The 5-step method is extremely similar whether it be discrete or continuous time or with or without dividends. April 2005 Question 8 is the main question on it and you should also be able to explain the steps in words. In fact, I thought this had come up in the exam but I now can't seem to find this question??

In the main, you're right that these bits have not really been examined much.

In terms of exam questions on topics being proportional to coverage of those topics in the Core Reading, they very rarely are in any subject. That's why you should use the past papers as the basis for where you spend your revision time rather than the finer details of the Core Reading. Of course any part of Core Reading is examinable at any time so we could never promise that something won't come up. But surely your time is better spent on the stuff that has come up?

Good luck!
John
 
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