The Henstock Integral and the Black-Scholes Theory of Derivative Asset Pricing

Abstract

The classical Black-Scholes-Merton method for pricing European call options uses the Itô calculus to model the processes involved. We show how to model stochastic process using Henstock integrands instead of Itô differentials (or stochastic integrals), and we show how to derive the Black-Scholes partial differential equation and pricing formulae using elementary methods.