Black-Scholes Equation

[HiddenMickey]

Hi

I am using the ASM for MFE preparation, and I am trying to work out how the B-S Equation was derived (Pg 175 of ASM) and i just couldn't figure it out.

I thought in the Profit formula (page 171 of ASM), the interest portion has [exp(rh)-1], how come it is showing exp(rh) only in the derivation of the formula? It would be great if someone can shed some light on this.

Thx :oops:

[Abraham Weishaus]

I don't see e^{rh}, I see rh. rh is the result of dropping all terms past the first in the Taylor expansion of e^{rh}-1,