In order to price multivariate derivatives, there is need for a multivariate stock price model. To keep the simplicity and attractiveness of the one-dimensional Black & Scholes model, one often considers a multivariate model where each individual stock follows a Black & Scholes model, but the underlying Brownian motions might be correlated. Although the classical one-dimensional Black & Scholes model is always arbitrage-free and complete, this statement does not hold true in a multivariate setting. In this paper, we derive conditions under which the multivariate Black & Scholes model is arbitrage-free and complete.
- Black & Scholes
- Brownian motion
- Multivariate asset price models
- Risk-neutral probability measure
ASJC Scopus subject areas
- Statistics and Probability
- Statistics, Probability and Uncertainty